Auditor's Report on Euskaltel, S.A

Auditor’s Report on Euskaltel, S.A.

(Together with the annual accounts and directors’ report of Euskaltel, S.A. for the year ended 31 December 2020)

(Translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.)

KPMG Auditores, S.L. Torre Iberdrola Plaza Euskadi, 5 Planta 17 48009 Bilbao

Independent Auditor's Report on the Annual Accounts

(Translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.)

To the Shareholders of Euskaltel, S.A.:

REPORT ON THE ANNUAL ACCOUNTS

Opinion ______We have audited the annual accounts of Euskaltel, S.A. (the “Company”), which comprise the balance sheet at 31 December 2020, and the income statement, statement of changes in equity and statement of cash flows for the year then ended, and notes.

In our opinion, the accompanying annual accounts give a true and fair view, in all material respects, of the equity and financial position of the Company at 31 December 2020, and of its financial performance and its cash flows for the year then ended in accordance with the applicable financial reporting framework (specified in note 2 to the accompanying annual accounts) and, in particular, with the accounting principles and criteria set forth therein.

Basis for Opinion______We conducted our audit in accordance with prevailing legislation regulating the audit of accounts in Spain. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Annual Accounts section of our report.

We are independent of the Company in accordance with the ethical requirements, including those regarding independence, that are relevant to our audit of the annual accounts pursuant to the legislation regulating the audit of accounts in Spain. We have not provided any non-audit services, nor have any situations or circumstances arisen which, under the aforementioned regulations, have affected the required independence such that this has been compromised.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

KPMG Auditores, S.L., a limited liability Spanish company and a member firm of the On the Spanish Official Register of Auditors (“ROAC”) with No. S0702, and the KPMG network of independent member firms affiliated with KPMG International Spanish Institute of Registered Auditors’ list of companies with No. 10. Cooperative (“KPMG International”), a Swiss entity. Reg. Mer Madrid, T. 11.961, F. 90, Sec. 8, H. M -188.007, Inscrip. 9 Paseo de la Castellana, 259C 28046 Madrid N.I.F. B-78510153

(Translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.)

Key Audit Matters______Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the annual accounts of the current period. These matters were addressed in the context of our audit of the annual accounts as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Estimation of supplier volume discount – Supplies See note 13.2 to the annual accounts

Key audit matter How the matter was addressed in our audit

The Company’s cost of supplies is reduced by certain Our audit procedures included the following: volume discounts, the application of which is subject to the degree of fulfilment of a certain accumulated volume a) evaluating the design and implementation of key of consumption within an agreed period, which is usually controls related to the supplies and discounts process; more than one year. b) reading and understanding the volume discount Under these circumstances, the appropriate recognition contracts with suppliers; of the cost of supplies requires the Company to make reliable estimates as to the degree to which the c) assessing the consistency of the volume discounts conditions giving entitlement to the discount will be met. recorded on the basis of the agreed-upon terms and These estimates require a high level of judgement by the conditions in the contract; and Directors. d) assessing whether the forecast accumulated Due to the uncertainty associated with these estimates consumptions for the years for which a minimum and the relevant effect that these discounts have on the volume has been established in the contract in order recognition of the cost of supplies for the year, this has to avail of the discount are reasonable and consistent been considered a key audit matter. with the business plan approved by the Directors. In this regard, we reviewed the historical level of achievement of the forecasts, comparing actual volumes of consumption with the initial forecasts.

(Translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.)

Recoverable amount of non-current investments in Group companies and associates See notes 4.5 and 8 to the annual accounts

Key audit matter How the matter was addressed in our audit

The recoverable amount of non-current investments in Our audit procedures included the following: Group companies and associates is calculated, in the case - assessing the design and implementation of key of companies showing indications of impairment, by controls related to the process of estimating the applying valuation techniques which often require the recoverable amount of investments in Group exercising of judgement by the Directors and the use of companies and associates; assumptions and estimates. Due to the uncertainty associated with these estimates, this has been considered - assessing the methodology and assumptions used to a key audit matter. estimate the recoverable amount using the value in use method based on discounted cash flows, with the involvement of our valuation specialists to evaluate the adequacy of the discount rates used and the long-term growth rates; - comparing the cash flow forecasts estimated in prior years with the actual cash flows obtained; - assessing the sensitivity of certain assumptions to changes that are considered reasonable; and - contrasting the information contained in the model used to calculate the recoverable amount with the business plan approved by the Directors. We also assessed whether the disclosures in the annual accounts meet the requirements of the financial reporting framework applicable to the Company.

(Translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.)

Revenue recognition See notes 4.10 and 13.1 to the annual accounts

Key audit matter How the matter was addressed in our audit

Revenue recognition is considered a key audit matter Our main audit procedures included evaluating the design given its significance in relation to the annual accounts as and implementation, with the help of our information a whole, and because the recognition of revenue from systems specialists, of the Company's controls over the services rendered is a highly automated process involving recognition of revenue from services rendered. a large number of individual transactions. We also assessed the design and implementation and tested the effectiveness of the general controls over program access and modification and automated component controls over invoicing systems and other support systems classified as critical for the purposes of our audit.

We also performed tests of detail, including the following:

a) Reconciliation of data from the invoicing and collection systems with the accounting records.

b) Review of corrective invoices and subsequent payments.

Other Information: Directors’ Report______Other information solely comprises the 2020 Directors' Report, the preparation of which is the responsibility of the Company's Directors and which does not form an integral part of the annual accounts.

Our audit opinion on the annual accounts does not encompass the directors' report. Our responsibility regarding the information contained in the directors’ report is defined in the legislation regulating the audit of accounts, as follows:

a) Determine, solely, whether the non-financial information statement and certain information included in the Annual Corporate Governance Report, as specified in the Spanish Audit Law, have been provided in the manner stipulated in the applicable legislation, and if not, to report on this matter.

b) Assess and report on the consistency of the rest of the information included in the directors’ report with the annual accounts, based on knowledge of the entity obtained during the audit of the aforementioned annual accounts. Also, assess and report on whether the content and presentation of this part of the directors’ report are in accordance with applicable legislation. If, based on the work we have performed, we conclude that there are material misstatements, we are required to report them.

(Translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.)

information contained in the directors’ report is consistent with that disclosed in the annual accounts for 2020, and that the content and presentation of the report are in accordance with applicable legislation.

Directors' and Audit Committee's Responsibilities for the Annual Accounts___ The Directors are responsible for the preparation of the accompanying annual accounts in such a way that they give a true and fair view of the equity, financial position and financial performance of the Company in accordance with the financial reporting framework applicable to the entity in Spain, and for such internal control as they determine is necessary to enable the preparation of annual accounts that are free from material misstatement, whether due to fraud or error.

In preparing the annual accounts, the Directors are responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

The audit committee is responsible for overseeing the preparation and presentation of the annual accounts.

Auditor’s Responsibilities for the Audit of the Annual Accounts______Our objectives are to obtain reasonable assurance about whether the annual accounts as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with prevailing legislation regulating the audit of accounts in Spain will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence economic decisions of users taken on the basis of these annual accounts.

(Translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.)

As part of an audit in accordance with prevailing legislation regulating the audit of accounts in Spain, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the annual accounts, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Directors.

• Conclude on the appropriateness of the Directors' use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the annual accounts or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the annual accounts, including the disclosures, and whether the annual accounts represent the underlying transactions and events in a manner that achieves a true and fair view.

We communicate with the audit committee of Euskaltel, S.A. regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the entity's audit committee with a statement that we have complied with the applicable ethical requirements, including those regarding independence, and to communicate with them all matters that may reasonably be thought to bear on our independence and, where applicable, related safeguards.

From the matters communicated to the audit committee of the entity, we determine those that were of most significance in the audit of the annual accounts of the current period and which are therefore the key audit matters.

(Translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.)

We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

Additional Report to the Audit Committee______The opinion expressed in this report is consistent with our additional report to the Company's audit committee dated 25 February 2021.

Contract Period______We were appointed as auditor by the shareholders at the ordinary general meeting on 2 June 2020 for a period of one year, starting from 1 January 2020. Previously, we had been appointed for a period of one year, by consensus of the shareholders at their general meeting, and have been auditing the annual accounts since the year ended 31 December 2013. KPMG Auditores, S.L. On the Spanish Official Register of Auditors (“ROAC”) with No. S0702

(Signed on original in Spanish)

Cosme Carral López-Tapia On the Spanish Official Register of Auditors (“ROAC”) with No. 18,961

25 February 2021

Annual Accounts and Directors’ Report for the year ended 31 December 2020

(Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.)

EUSKALTEL, S.A. Balance Sheet at 31 December 2020 (Expressed in thousands of Euros) (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.)

ASSETS Notes 31.12.2020 31.12.2019 NON-CURRENT ASSETS 2,679,421 2,627,136 Intangible assets 6 87,979 62,842 Property, plant and equipment 7 652,139 642,817 Land and buildings 87,570 91,870 Technical installations and other items 564,569 550,947 Non-current investments in Group companies and associates 8 & 9 1,806,026 1,789,487 Non-current investments 9 6,790 4,937 Deferred tax assets 12 126,487 127,053

CURRENT ASSETS 79,609 86,038 Inventories 2,310 1,759 Trade and other receivables 9 61,124 41,777 Current investments 9 360 115 Prepayments for current assets 1,654 767 Cash and cash equivalents 9 14,161 41,620 TOTAL ASSETS 2,759,030 2,713,174

EQUITY AND LIABILITIES Notes 31.12.2020 31.12.2019 EQUITY 1,039,404 1,050,912 Capital and reserves 10 1,038,049 1,049,606 Capital 535,936 535,936 Share premium 355,165 355,165 Reserves 129,698 124,726 (Own shares and equity holdings) (1,531) (1,472) Profit/(loss) for the year 40,936 60,261 (Interim dividend) (25,010) (25,010) Other equity instruments 2,855 - Valuation adjustments (64) (64) Available-for-sale financial assets (64) (64) Grants, donations and bequests received 1,419 1,370

NON-CURRENT LIABILITIES 1,420,677 1,372,878 Non-current debt 11 1,420,229 1,372,421 Deferred tax liabilities 448 457

CURRENT LIABILITIES 298,949 289,384 Current provisions 700 700 Current debt 11 204,511 238,443 Trade and other payables 11 & 12 93,738 50,241 TOTAL EQUITY AND LIABILITIES 2,759,030 2,713,174

Derio, 25 February 2021

EUSKALTEL, S.A.

Income Statement for the year ended 31 December 2020 (Expressed in thousands of Euros) (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.)

Notes 2020 2019

Revenues 13.1 368,130 346,304

6, 7 & Work performed by the entity and capitalised 13.1 10,202 8,223 Supplies 13.2 (124,176) (96,566) Other operating income 13.1 36 17

Personnel expenses 13.3 (25,441) (34,601) Other operating expenses 13.4 (71,239) (68,797) Amortisation and depreciation 6 & 7 (80,532) (74,727) Non-financial capital grants 77 77

Impairment and gains/(losses) on disposal of fixed assets 6 & 7 (4,885) (5,046) Other profit/(loss) 13.5 (4,734) (3,513)

RESULTS FROM OPERATING ACTIVITIES 67,438 71,371 Finance income 35,203 42,201 Finance cost (55,071) (45,999) Change in fair value of financial instruments 602 526

Exchange gains/(losses) 259 (286) Impairment and gains/(losses) on disposal of financial instruments - 9

NET FINANCE INCOME/COST 13.6 (19,007) (3,549)

PROFIT BEFORE INCOME TAX 48,431 67,822

Income tax 12 (7,495) (7,561)

PROFIT FOR THE YEAR 10 40,936 60,261

Derio, 25 February 2021

EUSKALTEL, S.A.

Statement of Changes in Equity for the year ended 31 December 2020 (Expressed in thousands of Euros) (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.)

A) Statement of Recognised Income and Expense for the year ended 31 December 2020

2020 2019 a) Profit/(loss) for the year 40,936 60,261

Income and expense recognised directly in equity Grants, donations and bequests 142 1,904 Tax effect (34) (457)

Total income and expense recognised directly in equity 108 1,447

Amounts transferred to the income statement Grants, donations and bequests (77) (77) Tax effect 18 -

Total amounts transferred to the income statement (59) (77)

TOTAL RECOGNISED INCOME AND EXPENSE 40,985 61,631

Derio, 25 February 2021

EUSKALTEL, S.A.

Statement of Changes in Equity for the year ended 31 December 2020 (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.)

B) Statement of Total Changes in Equity for the year ended 31 December 2020 (Expressed in thousands of Euros)

Grants, Reserves and Other donations Registered Share prior years' Profit/(loss) Interim Valuation equity and capital premium profit Own shares for the year dividend adjustments instruments bequests Total

Closing balance, 2018 535,936 355,165 87,706 (1,602) 92,089 (25,010) (64) - - 1,044,220

Total recognised income and expense - - - - 60,261 - - - 1,370 61,631

Transactions with shareholders

Own shares - - 260 130 - - - - - 390

Dividends - - - - - (25,010) - - - (25,010)

Distribution of profit - - 36,760 - (92,089) 25,010 - - - (30,319)

Closing balance, 2019 535,936 355,165 124,726 (1,472) 60,261 (25,010) (64) - 1,370 1,050,912

Total recognised income and expense - - - - 40,936 - - - 49 40,985

Transactions with shareholders

Own shares - - 37 (59) - - - - - (22)

Dividends - - - - - (25,010) - - - (25,010)

Distribution of profit - - 4,935 - (60,261) 25,010 - - - (30,316) Issue of share-based payments (note 10.5) ------2,855

2,855

Closing balance, 2020 535,936 355,165 129,698 (1,531) 40,936 (25,010) (64) 2,855 1,419 1,039,404

Derio, 25 February 2021

EUSKALTEL, S.A.

Statement of Cash Flows for the year ended 31 December 2020 (Expressed in thousands of Euros) (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.)

2020 2019

Profit/(loss) for the year before tax 48,431 67,822

Adjustments for 141,422 97,595

Amortisation and depreciation 80,532 74,727 Impairment allowances 1,091 2,427 Allocation of grants (77) (77)

Impairment and gains/(losses) on disposals of fixed assets 4,885 5,046 Impairment and gains/(losses) on disposals of financial instruments - (9) Finance income (35,203) (42,201) Finance cost 55,071 45,999 Exchange gains/(losses) (259) 286 Change in fair value of financial instruments (602) (526) Other income and expense 35,984 11,923

Changes in operating assets and liabilities 10,670 (22,943)

Inventories (551) 466 Trade and other receivables (20,434) (18,881) Other current assets (887) 134 Trade and other payables 29,265 2,593 Other current liabilities 3,277 (7,255)

Other cash flows from /(used in) operating activities (53,754) 26,947

Interest paid (44,474) (45,786) Dividends received - 43,903

Interest received 607 29,777 Income tax paid (9,887) (947)

Cash flows from/(used in) operating activities 146,769 169,421

Derio, 25 February 2021

EUSKALTEL, S.A.

Statement of Cash Flows for the year ended 31 December 2020 (Expressed in thousands of Euros) 2020 2019

Payments for investments (124,308) (83,557)

Intangible assets (49,261) (31,210) Property, plant and equipment (72,949) (50,305) Other financial assets (2,098) (2,042)

Proceeds from sale of investments 4,686 4,738

Property, plant and equipment 2,334 1,411

Group companies and associates 2,352 3,300 Other financial assets - 27

Cash flows from/(used in) investing activities (119,622) (78,819)

Proceeds from and payment for equity instruments (22) 390

Disposal of own equity instruments (22) 390

Proceeds from and payment for financial liability instruments 743 (48,782)

Issue of: 131,743 131,918 Bonds and other marketable securities 131,600 131,000 Grants 143 918

Repayment of: (131,000) (180,700) Loans and borrowings - (110,000) Bonds and other marketable securities (131,000) (70,700)

Dividends and interest on other equity instruments paid (55,327) (55,329) Dividends (55,327) (55,329)

Cash flows from/(used in) financing activities (54,606) (103,721)

Cash and cash equivalents at beginning of the year 41,620 54,739 Cash and cash equivalents at year end 14,161 41,620

NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (27,459) (13,119)

Derio, 25 February 2021

EUSKALTEL, S.A.

NOTES TO THE ANNUAL ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 2020 (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.)

NOTE 1.- General information

Euskaltel, S.A. (hereinafter the Company) was incorporated with limited liability on 3 July 1995. Its first product was launched on the market on 23 January 1998. Its registered office is located in Derio (Bizkaia) and its products are primarily marketed and sold in the Basque Country.

The Company's statutory and principal activity since incorporation has been the rendering, management, installation, operation and marketing and sale of telecommunications networks and services in accordance with prevailing legislation, as well as the marketing and sale of goods required to carry out these services. The Company's main facilities are located at the Bizkaia science and technology park.

On 1 July 2015 the Company's shares were admitted to trading on the Barcelona, Bilbao, Madrid and Valencia stock exchanges.

On 27 November 2015 the Company acquired 100% of the shares of R Cable y Telecomunicaciones Galicia, S.A. (hereinafter R. Cable) (see note 8), an entity incorporated in A Coruña on 1 August 1994 whose principal activity is the rendering of services similar to those of the Company, in Galicia. R Cable is the leading telecommunications operator in Galicia, with access to an extensive fibre-optic network, and provides mobile telephone services through an agreement with a virtual mobile operator.

On 26 July 2017 the Company acquired the entire share capital of Parselaya, S.L., indirect holder of 100% of Telecable de Asturias, S.A. (hereinafter Telecable), a company incorporated in Oviedo on 26 January 1995 whose principal activity is the rendering of services similar to those of the Company, in Asturias. On 21 June 2018, the board of directors of Telecable de Asturias, S.A., Telecable Capital Holding, S.A. and Parselaya, S.A. approved the merger of Telecable de Asturias, S.A. by the absorption of Telecable Capital Holding, S.A. and Parselaya, S.A.

Medbuying Technologies Group, S.L. (”Medbuying”) was incorporated on 7 March 2019, with the Company holding a 10% share therein. The corporate purpose of this company is to centralise purchases of mobile terminals, routers and other telecommunications accessories.

Following on from its strategy to expand into neighbouring regions (Navarre, La Rioja, and Cataluña), in May 2020 the Euskaltel Group launched its national expansion plan via the Virgin telco brand.

Under prevailing legislation, the Company is the parent of a group of companies, and is obliged to present consolidated annual accounts, which were prepared on 25 February 2021 and show consolidated profit of Euros 79,366 thousand and consolidated equity of Euros 1,009,249 thousand (Euros 62,018 and Euros 981,965 thousand in 2019).

NOTE 2.- Basis of presentation

2.1. True and fair view

The accompanying annual accounts have been prepared based on the accounting records of Euskaltel, S.A. and in accordance with prevailing legislation and the Spanish General Chart of Accounts, to give a true and fair view of the equity and financial position at 31 December 2020 and results of operations, changes in equity, and cash flows for the year then ended.

The directors of the Company consider that the annual accounts for 2020, authorised for issue on 25 February 2021, will be approved with no changes by the shareholders at their annual general meeting.

2.2. Comparative information

The balance sheet, income statement, statement of changes in equity, statement of cash flows and the notes thereto for 2020 include comparative figures for the prior year as approved by the shareholders of the Company at the general meeting held on 2 June 2020.

2.3. Critical issues regarding the valuation and estimation of uncertainties

Preparation of the annual accounts requires certain estimates and judgements concerning the future. These are evaluated continuously and are based on historical experience and other factors, including expectations of future events and, where applicable, the justified opinion of renowned experts.

In the event that the final outcome of the estimates differed from the amounts initially recognised, or information that would modify these estimates became available, the effects of any changes in the initial estimates are accounted for in the period they are known.

The estimates and judgements that present significant risk of a material adjustment to the carrying amounts of assets and liabilities in the subsequent reporting period are as follows: a) Recoverability of tax credits

Deferred tax assets are recognised for all available deductible temporary differences and deductions to the extent that it is probable that the Company will obtain sufficient taxable income against which they can be utilised. In order to determine the amount of the deferred tax assets to be recognised, estimates are made of the amounts and dates on which future taxable profits will be obtained and the existence of taxable temporary differences. b) Volume discounts from suppliers

The Company’s expenditure for supplies is reduced due to certain volume discounts, the application of which is subject to purchasing a certain amount over the stipulated period, normally more than one year. The adequate recognition of supply expenses under these circumstances requires that the Company be able to reliably estimate the degree of compliance with the conditions entitling it to the discount.

c) Recoverable value of investments in Group companies

The Company tests investments in Group companies that present indications of impairment. The recoverable value is determined through discounted future cash flow estimates, which require the application of judgments by Directors when establishing certain key assumptions.

All previous estimates have been updated taking into account the variables included in Euskaltel's Group Business Plan. d) Estimates made in relation to share-based payments

In order to calculate the amount to be recognised as equity instruments for the share-based payment plans offered to certain employees, the Company estimates the fair values of the liabilities when assigned and, at each reporting close, the degree of fulfilment (%) of the targets set and number of people entitled to receive the payments (note 10.5). e) Useful life of cable network assets

As explained in note 7, the Euskaltel Group will be deploying a fibre optic FTTH network, which requires re- estimating the useful life of part of the current network assets that will have to be derecognised when this deployment is brought into operation. The technical team responsible for this deployment estimates the time it will take to deploy this new fibre network.

2.4. Presentation currency

The annual accounts are expressed in thousands of Euros rounded off to the nearest thousand.

2.5. Grouping of items

To facilitate understanding, certain items in the balance sheet, income statement, statement of changes in equity and statement of cash flows have been aggregated, details of which are included in the relevant notes to the annual accounts.

NOTE 3.- Distribution of profit

The distribution of profits for the year ended 31 December 2019, approved by the shareholders at their annual general meeting held on 2 June 2020, was as follows:

Basis of application Euros Voluntary reserves 62,628,972.75 Share premium 355,164,632.28 Profit for the year 60,261,040.80 478,054,645.83

Distribution Euros Legal reserve 6,026,104.08 Dividends Interim dividend 25,010,350.40 Additional dividend 30,369,711.20 Share premium 355,164,632.28 Voluntary reserves 61,483,847.87 478,054,645.83

The proposed distribution of reserves and profit for the year ended 31 December 2020 is as follows: Basis of application Euros Voluntary reserves 61.574.328,79 Share premium 355.164.632,28 Profit for the year 40.935.669,33 457.674.630,50

Distribution Euros Legal reserve 4.093.566,93 Dividends Interim dividend 25.010.350,40 Additional dividend 30.369.711,20 Share premium 355.164.632,38 Voluntary reserves 43.036.369,59 457.674.630,50

The proposed dividend distribution is equivalent to one total unified dividend, including the interim dividend paid, of Euros 0.31 per share outstanding at year end.

On 15 December 2020, the Board of Directors agreed to pay an interim dividend against 2020 results for a gross amount of Euros 0.140 per share outstanding with dividend rights. This interim dividend, which was paid on 12 February 2021, amounted to a gross outlay of Euros 25 million (see notes 11 and 19).

These amounts did not exceed the results obtained since the end of the year by the Company, less the estimated Corporate Income Tax payable on these profits, in line with article 277 of the rewritten text of the Spanish Securities Market Act.

The provisional accounting statement drawn up at 30 September 2020 in accordance with the legal requirements, and which showed that there was enough liquidity to distribute the dividend is as follows:

Thousands of

Euros

Net result obtained from 01.01.2020 to 30.09.2020 (*) 39,171 Mandatory reserves (3,917) Distributable profit 35,254 Proposed interim dividend (maximum amount) (25,010)

Cash situation Funds available for distribution: 186,877 Cash and cash equivalents 7,627 Loans available 179,250 Proposed interim dividend (maximum amount) (25,010) Excess liquidity 161,867

(*) After deducting the estimated corporate income tax for the period

NOTE 4.- Accounting principles

4.1. Intangible assets

Intangible assets are recognised at acquisition cost or production cost. Production costs are capitalised in the income statement caption Work performed by the entity and capitalised. Intangible assets are recorded on the balance sheet at cost value less accumulated amortisation and impairment allowances. a) Computer software

Costs related to the acquisition and development of computer software are recognised at cost of acquisition or production and are amortised on a straight-line basis over their estimated useful lives of between 3 and 5 years.

Computer software maintenance costs are charged as expenses when incurred. b) Licences

Licences for the use of radio space are carried at cost less accumulated amortisation and any recognised accumulated impairment. Amortisation is calculated on a straight-line basis over the concession period. c) Brands

If an intangible asset includes a contingent component, it is accounted for at the best estimate of the present value of the contingent payment, except when these payments are conditional upon a future event that increases the economic benefits or returns the asset will generate (such as variables regarding sales or the result for the year) in which case the considerations will be expensed as they arise.

On 12 January 2020, the Company signed a contract with Virgin Enterprises Limited under which the latter assigned the right of use of its brand to the Euskaltel Group. The majority of the corresponding consideration comprises sales-related variable payments. The expense recognised during the year for this assignment of the right of use was not material. d) Other intangible assets

Other intangible assets include the incremental and specific costs related to the amounts paid for each contract entered into, and are amortised over the period in which Euskaltel expects to generate revenue through the commercial relationship with the customer, provided the customer does not discontinue the contract, in which case the amount pending amortisation is taken to profit and loss.

e) Impairment

The Company evaluates and determines impairment losses and reversals of impairment losses on intangible assets based on the criteria described in note 4.3.

4.2. Property, plant and equipment

Property, plant and equipment are recognised at cost of acquisition or production, less accumulated depreciation and any recognised accumulated impairment losses.

The value of work performed by the entity and capitalised is calculated taking into account direct and indirect costs attributable to those assets.

Costs incurred to extend, modernise or improve property, plant and equipment are only recorded as an increase in the value of the asset when the capacity, productivity or useful life of the asset is increased and it is possible to ascertain or estimate the carrying amount of the assets that have been replaced in inventories.

Recurring maintenance costs are recognised in the income statement when incurred.

Property, plant and equipment are depreciated on a straight-line basis over their estimated useful lives, based on the actual decline in value due to operation and use.

The estimated average useful lives of property, plant and equipment are as follows:

Buildings 50 Civil engineering 50 Cablings 18-40 Network equipment 10-18 Customer equipment 2-15 Other installations, equipment and furniture 6-7 Other intangible assets 5-8

The majority of property, plant and equipment reflects investments to deploy the Company's telecommunications network throughout the Basque Country.

The Company reviews residual values, useful lives and depreciation methods at each year-end. Changes to initially established policies are accounted for as a change in accounting estimates. During 2020, the Company re-estimated the residual life of certain elements of the HFC network that it will begin to replace sooner than initially planned (see note 7), reducing this residual life to 24 months at 31 December 2020.

Based on the expected use of the Company's assets, their residual value is not estimated to be significant at the reporting date.

When the carrying amount of an asset is higher than its estimated recoverable amount, its value is immediately reduced to its recoverable amount in accordance with the criteria in note 4.3. Impairment losses, or reversals of impairment losses if the circumstances in which they were recognised no longer exist, are recognised as an expense or income, respectively, in the income statement.

Finance costs that are directly attributable to the acquisition or construction of assets which will not be available for use for over a year are included in the cost of the asset when the expenses related to the asset have been incurred, interest has been accrued and the steps necessary to prepare the assets for their intended use are being taken. Capitalisation of borrowing costs is suspended when construction of the assets is interrupted, except when the interruption is considered necessary to make the asset operational.

4.3. Impairment losses on non-financial assets

The Company evaluates whether there are indications of possible impairment losses on non-financial assets subject to amortisation or depreciation to verify whether the carrying amount of these assets exceeds the recoverable amount.

Recoverable amount is determined for each individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. If this is the case, recoverable amount is determined for the cash-generating unit (CGU) to which the asset belongs.

Impairment losses for CGU's reduce the carrying amount of the assets allocated to the unit on a pro-rata basis depending on their carrying amounts. The carrying amount of each asset may not be reduced below the highest of its fair value less costs of disposal, its value in use and zero.

At the end of each reporting period the Company assesses whether there is any indication that an impairment loss recognised in prior periods may no longer be applicable or may have decreased. Impairment losses are only reversed if there has been a change in the estimates used to calculate the recoverable amount of the asset.

Impairment losses are recognised in the income statement.

A reversal of impairment is recognised in the income statement. The increased carrying amount of an asset attributable to a reversal of impairment may not exceed the carrying amount that would have been determined, net of depreciation or amortisation, had no impairment been recognised.

A reversal of an impairment loss for a CGU is allocated to the non-current assets of each unit, pro-rata with the carrying amounts of those assets. The carrying amount may not be increased above the lower of its recoverable amount and the carrying amount that would have been disclosed, net of amortisation or depreciation, had no impairment loss been recognised.

After an impairment loss or reversal of an impairment loss is recognised, the depreciation (amortisation) charge for the asset is adjusted in future periods based on its new carrying amount.

However, if the specific circumstances of the assets indicate an irreversible loss, this is recognised directly in losses on the disposal of fixed assets in the income statement.

4.4. Inventories

Inventories are initially measured at the lower of cost (whether cost of acquisition or production) and net realisable value, and any related impairment losses or reversals are recognised in the income statement.

Cost is determined using the weighted average cost method. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs necessary to make the sale.

4.5. Financial assets a) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.

These financial assets are initially carried at fair value, including directly attributable transaction costs, and subsequently measured at amortised cost, recognising accrued interest at the effective interest rate. Nevertheless, trade receivables falling due in less than one year are carried at their nominal amount on both initial recognition and subsequent measurement, provided that the effect of not discounting the cash flows is immaterial.

The impairment loss is calculated as the difference between the carrying amount of the asset and the present value of the estimated future cash flows. Impairment losses are recognised and reversed in profit or loss. Balances receivable are derecognised when they are no longer expected to be recovered. b) Investments in Group companies

Investments in Group companies and associates are initially recognised at cost, which is equivalent to the fair value of the consideration given, including, in the case of investments in associates, transaction costs incurred. After initial recognition, they are measured at cost less any accumulated impairment.

The contingent consideration that is part of the acquisition cost in a business combination is classified based on the underlying contractual conditions as a financial asset or liability, equity instrument or provision. If any subsequent changes in the fair value of a financial asset or liability do not relate to an adjustment to the measurement period, they are recognised in the income statement.

If there is objective evidence that the carrying amount is not recoverable, the amount of the impairment loss is measured as the difference between the carrying amount and the recoverable amount, the latter of which is understood as the higher of the fair value less costs to sell and the present value of estimated future cash flows from the investment. Impairment losses and, where applicable, reversions are recognised and reversed in profit or loss.

During 2019 the subsidiaries R Cable and Telecable merged through the absorption of Telecable by R Cable, which increased the value of the investment in R Cable by the amount at which the interest in Telecable was measured, in accordance with accounting and measurement standard 21. Since the merger is between subsidiaries wholly owned by the same company, it was treated as though, in substance, the Company was making a non-monetary contribution of its interest in Telecable to R Cable. c) Derecognition of financial assets

A financial asset is derecognised from the balance sheet when all the risks and rewards of ownership are substantially transferred.

4.6. Cash and cash equivalents

Cash and cash equivalents include cash on hand and demand deposits in financial institutions and other short- term, highly liquid investments with original maturity of less than three months.

4.7. Own shares

The acquisition of equity instruments of the Company is recognised separately at cost of acquisition as a reduction in equity, regardless of the reason for the purchase. No gain or loss is recognised on transactions involving own equity instruments.

The subsequent redemption of the Company shares entails a capital reduction equivalent to the par value of the shares. Any positive or negative difference between the purchase price and the par value of the shares is debited or credited to reserves.

Transaction costs related to own equity instruments are accounted for as a reduction in equity, net of any tax effect.

4.8. Financial liabilities

Financial liabilities are initially recognised at fair value, adjusted for directly attributable transaction costs, and subsequently carried at amortised cost using the effective interest method. Nevertheless, trade payables falling

due in less than one year without a contractual interest rate are carried at their face value on both initial recognition and subsequent measurement, provided the effect of not discounting flows is not significant.

A financial liability, or part of a financial liability, is derecognised when the Company has complied with the attached obligation. Any difference between the carrying amount of the financial liability and the consideration given is taken to profit and loss.

Debt instrument exchanges between the Company and the counterparty or substantial modifications in liabilities initially recorded, are recognised as a settlement of the original financial liability and the new financial liability is accounted for, as long as the instruments have substantially different conditions.

The Company deems that the conditions are substantially different if the present value of the cash flows discounted under the new conditions -including any commission paid, less any commission received, and using the original effective interest rate- differs by at least 10% from the present value of the discounted cash flows still remaining from the original financial liability.

If the exchange is recognised as a settlement of the original financial liability, costs or commissions are recognised as profit or loss in the income statement. Otherwise, costs or commissions adjust the carrying value of the liability and are amortised over the remaining life of the modified liability using the amortised cost method. In the latter case, a new effective interest rate is set on the date of modification, equalising the present value of the cash flows payable, according to the new conditions, with the carrying value of the financial liability at that date.

4.9. Hedge accounting

Derivative financial instruments which qualify for hedge accounting are initially measured at fair value, plus any transaction costs that are directly attributable to the acquisition or less any transaction costs directly attributable to the issue of the financial instruments. Nonetheless, transaction costs are subsequently recognised in profit and loss, inasmuch as they do not form part of the changes in the effective value of the hedge.

The Company recognises the portion of the gain or loss on the measurement at fair value of a hedging instrument that is determined to be an effective hedge as income and expense in equity. The ineffective portion and the specific component of the gain or loss or cash flows on the hedging instrument, excluding the measurement of the hedge effectiveness, are recognised in Change in fair value of financial instruments.

4.10. Revenue recognition

Revenue from the sale of goods and rendering of services is measured at the fair value of the consideration received or receivable. Prompt payment discounts, volume rebates and any other discounts, as well as interest included in the receivables nominal amount, are recognised as a reduction in the consideration.

The main revenues generated by the Company are those related to individual or combined offerings of telephone, Pay TV, broadband and mobile telephone services.

In the case of combined offerings, the need to individually treat the different components of the bundle is analysed in order to allocate the revenue to each component.

Landline and prepaid mobile telephone revenue is recognised when the services are provided.

Revenue from fixed rates with predetermined talk times is recognised on a straight-line basis over the contractual period.

Regular charges for network use (telephone, internet and Pay TV services) are recognised in the income statement over the contractual period.

For amounts collected in advance in respect of prepaid mobile telephone services, the unused amount is recognised as a liability until it has been consumed or the contractual obligations cancelled.

Revenue from leased equipment and other services is recognised in the income statement when the service is rendered.

Revenue from the sale of equipment to customers is recognised when the risks and rewards of ownership have been transferred, which normally takes place when the asset is delivered.

4.11. Leases

Leases in which the lessor retains substantially all the risks and rewards incidental to ownership are classified as operating leases. Lease payments under operating leases are recognised as an expense on a straight-line basis over the lease term.

4.12. Foreign currency transactions

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the transaction date. Foreign currency gains and losses resulting from the settlement of transactions and translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currency are recognised in the income statement.

4.13. Related party transactions

Transactions between related parties are initially recognised at fair value. Transactions are subsequently measured in accordance with applicable accounting standards.

4.14. Income tax

The income tax expense/(income) is the amount that, for this concept, accrues in the year and that includes both the current tax expense (income) and deferred tax.

Both current and deferred tax expense/(income) are recorded in the income statement. The tax effect related to items that are recorded directly in equity is however recognised in equity.

Current tax assets and liabilities will be measured at the amounts expected to be paid or recovered from the tax authorities, in accordance with current or approved regulations pending publication at the reporting date.

Deferred taxes are calculated, according to the liability method, based on the temporary differences between the tax base of an asset or liability and its carrying amount.

However, if the deferred taxes arise from the initial recognition of an asset or a liability in a transaction that is not a business combination and, at the time of the transaction, affects neither accounting profit nor taxable income, they are not recognised. Deferred tax is calculated by applying regulations and the tax rates approved or about to be approved at the balance sheet date and expected to apply when the corresponding deferred tax asset is realised or the deferred tax liability is settled.

Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which to offset temporary differences.

4.15. Dismissal payments

Dismissal payments are recorded as personnel expenses in the year in which the Company decides to make them and a valid expectation is created vis-à-vis third parties regarding the dismissal.

4.16. Environmental issues

Expenses derived from protecting and improving the environment are recognised as an expense in the period in which they are incurred. Property, plant and equipment modified or acquired to minimise the environmental impact of its activity and protect and improve the environment are recognised as an increase in property, plant and equipment.

4.17. Share-based payment transactions

Where settlement options exist and it is the Company that determines the payment method, if there is no present obligation to settle a payment arrangement with employees in cash, the plan is accounted for as if it were to be settled through equity instruments.

Equity-settled payments to employees are recognised as follows:

• If the equity instruments granted vest immediately on the grant date, the services received are recognised in full, with a corresponding increase in equity; • If the equity instruments granted do not vest until the employees complete a specified period of service, those services are accounted for during the vesting period, with a corresponding increase in equity.

The Group determines the fair value of the instruments granted to employees at the grant date.

Market conditions and other non-vesting conditions are taken into account when measuring the fair value of the instrument. The remaining vesting conditions are taken into account by adjusting the number of equity instruments included in the measurement of the transaction amount so that, ultimately, the amount recognised for services received is based on the number of equity instruments that eventually vest. Consequently, the Group recognises the amount for the services received during the vesting period based on the best available estimate of the number of equity instruments expected to vest and revises that estimate if subsequent information indicates that the number of equity instruments expected to vest differs from previous estimates.

Once the services received and the corresponding increase in equity have been recognised, no additional adjustments are made to equity after the vesting date, although any necessary reclassifications in equity may be made.

Accounting standards applicable from 1 January 2021

On 30 January 2021, Royal Decree 1/2021 of 12 January was published, amending the Spanish General Chart of Accounts approved by Royal Decree 1514/2007 of 16 November, the Spanish General Chart of Accounts for Small and Medium Businesses approved by Royal Decree 1515/2007 of 16 November; the Standards for Preparing Consolidated Annual Accounts approved by Royal Decree 1159/2010 of 17 September; and the Standards for Adapting the Spanish General Chart of Accounts to not-for-profit entities approved by Royal Decree 1491/2011 of 24 October. Likewise, on 13 February 2021, the Resolution of 10 February 2021 of the Spanish Institute of Accounting and Auditing was published, setting out the standards for the registration, measurement and preparation of annual accounts regarding the recognition of income from the delivery of goods and the rendering of services.

The changes to the regulations are effective for years beginning on or after 1 January 2021 and they focus on the criteria for the recognition, measurement and disclosure of income from the delivery of goods and services, financial instruments, hedge accounting, measurement of inventories of raw materials traded by intermediaries and the definition of fair value.

The individual annual accounts referring to the first year beginning on or after 1 January 2021 shall include comparative information, even though there is no obligation to restate the information from the previous year.

Comparative information will only be restated if all the criteria approved by the Royal Decree can be applied without causing retrospective bias, without prejudice to the exceptions set out in the transitional provisions.

Generally speaking the standards are applied retroactively, although with alternative practical solutions. Hedge accounting is however applied prospectively, the criteria for the classification of financial instruments can be applied prospectively and the criteria for income from sales and services rendered can be applied prospectively to contracts commencing on or after 1 January 2021.

The Company’s Directors are assessing the applicable transition options and the accounting impact of these amendments. At the date of preparing these individual annual accounts, these changes are not expected to significantly affect the Company's annual accounts.

NOTE 5.- Financial risk management

The Company’s activities are exposed to credit risk, liquidity risk, and market risk, the latter of which includes currency and interest rate risk.

The Company uses financial risk evaluation and mitigation methods suited to its activity and scope of operations, which are sufficient to adequately manage risks.

A summary of the main risks affecting the Company, and the measures in place to mitigate their potential affect, is as follows: a) Credit risk

Credit risk is the risk of financial loss to which the Company is exposed in the event that a customer or counterparty to a financial instrument fails to discharge a contractual obligation. This risk is concentrated in receivables.

The Company considers customer credit risk to be mitigated by the application of different policies, and the high level of dispersion of receivables. Among the different policies and specific practices are the customer acceptance policy, continual monitoring of customer credit, which reduces the possibility of default on the main receivables, and collection management.

Cash and cash equivalents reflect the amounts available with financial institutions that have high credit ratings. b) Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or other financial assets. The Company’s approach to managing liquidity risk is to ensure, as far as possible, that it has enough liquidity to settle its debts as they fall due, in both normal and stressed conditions, without incurring unacceptable losses or compromising its reputation.

The Company adjusts the maturities of its debts to its capacity to generate cash flows to settle them.

To do this, the Company has implemented a five-year financing plan with annual reviews and regular analyses of its financial position, which includes long-term projections, together with daily monitoring of bank balances and transactions.

Although the Company's working capital, defined as the difference between current assets and current liabilities (maturing in less than 12 months in both cases), is negative, this is mainly because of the way the business operates, resulting in the average collection period being shorter than the average payment period, which is common practice in the sector in which the Company operates.

c) Market risk, currency risk and interest rate risk

Market risk is the risk that changes in prices could affect the Company’s revenue or the value of its financial instruments. The objective of managing market risk is to control exposure to this risk, within reasonable parameters, and optimise returns.

The Company's scope of operations barely exposes it to currency risks, which may arise from occasional purchases in foreign currency of insignificant amounts.

Interest rate risks arises on variable-rate loans from financial institutions and related parties, which expose the Company to fluctuations in future cash flows. To mitigate the risk of the effect of a potential rise in interest rates, during 2017 the Company finalised agreements with certain financial institutions to hedge against increases in the Euribor, over a nominal amount of Euros 825 million, equivalent to 50% of the nominal amount drawn down on loans with financial institutions. The amount of the financial instrument at 31 December 2020 and the impact on results are not significant.

The Company regularly revises its interest rate hedging policy. Under this policy, the need to contract interest rate hedges is assessed.

The Company also closely monitors the performance of interest rates in the financial market

For the year ended 31 December 2020, had interest rates risen by 100 basis points, with other variables remaining constant, profit (after tax) would have fallen by Euros 6,249 thousand (Euros 7,293 thousand for the year ended 31 December 2019).

NOTE 6.- Intangible assets

Details of intangible assets and movement are as follows:

31.12.19 Additions Disposals Transfers 31.12.20

Cost

Industrial property 625 27 - 2,334 2,986

Computer software 107,553 19,474 - (11) 127,016

Licences 2,674 - - - 2,674

Other intangible assets 47,648 29,759 (7,946) (2,323) 67,138

158,500 49,260 (7,946) - 199,814

Accumulated amortisation

Industrial property (853) (225) - - (1,078)

Computer software (78,262) (9,152) - - (87,414)

Licences (1,094) (117) - - (1,211)

Other intangible assets (15,449) (9,139) 2,456 - (22,132)

(95,658) (18,633) 2,456 - (111,835)

Carrying amount 62,842 30,627 (5,490) - 87,979

31.12.18 Additions Disposals Transfers 31.12.19

Cost

Industrial property 640 (15) - - 625

Computer software 94,174 13,379 - - 107,553

Licences 2,674 - - - 2,674

Other intangible assets 37,805 17,846 (8,003) - 47,648

135,293 31,210 (8,003) - 158,500

Accumulated amortisation

Industrial property (625) (228) - - (853)

Computer software (69,929) (8,333) - - (78,262)

Licences (977) (117) - - (1,094)

Other intangible assets (11,498) (6,781) 2,830 - (15,449)

(83,029) (15,459) 2,830 - (95,658)

Carrying amount 52,264 15,751 (5,173) - 62,842

The cost of fully amortised intangible assets in use at 31 December 2020 totals Euros 73,242 thousand (Euros64,594 thousand at 31 December 2019).

The Company has contracted sufficient insurance policies to cover the risks to which its intangible assets are exposed.

At 31 December 2020 Company personnel expenses totalling Euros 4,978 thousand (Euros 2,524 thousand at 31 December 2019) have been capitalised as intangible assets.

NOTE 7.- Property, plant and equipment

Details of property, plant and equipment and movement in 2020 are as follows:

31.12.19 Additions Disposals Transfers 31.12.20 Cost

Land and buildings 135,678 - - 403 136,081

Civil engineering 271,524 - - 2,685 274,209

Cabling 295,918 - - 4,781 300,699

Network equipment 410,099 - (3,413) 21,346 428,032

Customer equipment 340,742 - (59) 26,930 367,613 Other installations, equipment 169,991 301 - 8,671 178,963 and furniture

Under construction 7,476 72,648 - (65,020) 15,104 Other property, plant and 25,481 - - 204 25,685 equipment

1,656,909 72,949 (3,472) - 1,726,386

Accumulated depreciation Land and buildings (43,808) (4,703) - - (48,511) Civil engineering (85,607) (5,608) - - (91,215) Cabling (175,594) (7,183) - - (182,777) Network equipment (321,842) (14,902) 1,709 - (335,035) Customer equipment (242,277) (18,668) 35 - (260,910) Other installations, equipment (124,515) (10,026) - - (134,541) and furniture Other property, plant and (20,449) (809) - - (21,258) equipment (1,014,092) (61,899) 1,744 - (1,074,247)

Carrying amount 642,817 11,050 (1,728) - 652,139

Details of property, plant and equipment and movement in 2019 are as follows:

31.12.18 Additions Disposals Transfers 31.12.19 Cost

Land and buildings 135,364 - - 314 135,678

Civil engineering 267,213 - - 4,311 271,524

Cabling 289,356 - - 6,562 295,918

Network equipment 399,710 - (2,473) 12,862 410,099

Customer equipment 318,695 - - 22,047 340,742 Other installations, 161,668 43 - 8,280 169,991 equipment and furniture

Under construction 10,336 50,262 - (53,122) 7,476 Other property, plant and 25,394 - - 87 25,481 equipment

1,607,736 50,305 (2,473) 1,341 1,656,909

Accumulated depreciation Land and buildings (39,112) (4,696) - - (43,808) Civil engineering (80,061) (5,546) - - (85,607) Cabling (169,087) (6,507) - - (175,594) Network equipment (308,168) (14,864) 1,190 - (321,842) Customer equipment (225,778) (16,499) - - (242,277) Other installations, (114,325) (10,190) - - (124,515) equipment and furniture Other property, plant and (19,483) (966) - - (20,449) equipment (956,014) (59,268) 1,190 - (1,014,092)

Carrying amount 651,722 (8,963) (1,283) 1,341 642,817

Additions to property, plant and equipment include Euros 8,387 thousand relating to net changes in customer equipment stored at the Group’s warehouses which has not yet been installed in customers’ homes or premises.

During the year ended 31 December 2020 internal expenses amounting to Euros 5,224 thousand (Euros 5,699 thousand in 2019) have been capitalised.

The cost of fully depreciated property, plant and equipment in use at 31 December 2020 is Euros 605,937 thousand (Euros 528,745 thousand at 31 December 2019).

At 31 December 2020 and 31 December 2019, sufficient insurance policies have been taken out to cover the risks to which property, plant and equipment are exposed.

At 31 December 2020, the Company's telecommunications network is pledged to secure compliance with the Company's financing obligations (see note 11).

In November 2020, the company’s directors agreed the roll-out of the FTTH fibre optic network. As a result, the company re-estimated the residual useful lives of certain cable network elements that will no longer be used. The estimated residual life of these elements (24 months) is based on in-house analysis by the technical department in charge of the roll-out. The key assumption made to arrive at this estimate is the expected time needed to undertake this roll-out. The company has prospectively applied this new useful life from the date the directors voluntarily decided to carry out this roll-out, resulting in a Euros 2,6 million increase in the depreciation charge on the consolidated income statement for 2020. Reasonable changes to the key assumption would not result in a material change in the depreciation charge for the year.

NOTE 8.- Investments in Group companies and associates

Details of investments in Group companies and associates are as follows:

31.12.20 31.12.19 Equity instruments RCable y Telecable Telecomunicaciones, S.A.U. 1,116,872 1,116,872 EKT Cable y Telecomunicaciones, S.L.U. 3 3 1,116,875 1,116,875 (note 9) (note 9)

31.12.20 31.12.19 Loans to Group companies RCable y Telecable Telecomunicaciones, S.A.U. 689,151 672,612 689,151 672,612 (note 9) (note 9)

On 27 November 2015, the Company acquired 100% of the company R Cable y Telecomunicaciones Galicia, S.A. for Euros 894,819 thousand.

On 26 July 2017 the Company acquired 100% of the shares in Parselaya, S.L., which indirectly wholly owned Telecable de Asturias, S.A. and the loans maintained by the former shareholder with Parselaya, S.L. (note 9), in the amount of Euros 181,724 thousand. The cost totalled Euros 403,777 thousand and consisted of the following items:

- A cash payment of Euros 174,777 thousand;

- Issue of 26,800,000 shares whose fair value at the business combination date was Euros 227,961 thousand.

- Contingent price based on a percentage of net tax credits (understood to be the difference between existing tax credits less deferred liabilities arising as a result of the application of accelerated depreciation to fixed assets) recorded by the acquired companies. The price will be paid based on compliance with certain conditions. The fair value of this payment was estimated at Euros 1,039 thousand, which was paid during 2019. This contingent price was re-estimated in 2020 and the new price recognised in profit or loss for Euros 8,654 thousand (see notes 4.5.b. and 11.1.).

During 2018 the companies Parselaya, S.L. and Telecable Capital Holding, S.A. were merged by reverse takeover by Telecable de Asturias, S.A.U. Moreover, R Cable took over Telecable in 2019. As a result, in 2019 the Company recorded the corresponding disposal of the investment in Telecable for Euros 222,053 and an addition in the investment of the merged company R Cable y Telecable for the same amount.

Details of R Cable and Telecable's financial information at 31 December 2020 are as follows:

R Cable

Capital 40,144 Share premium 26,698 Reserves and prior years' losses 168,266 Profit/(loss) for the year 8,354 Grants 27,693 271,155

Results from operating activities 27,665

Goodwill amortisation (43,348) Results from operating activities 27,665 EBITDA 172,409 Profit before income tax (7,379) Income tax 15,733 Profit for the year 8,354

Results from operating activities of R Cable y Telecable includes goodwill amortisation expenses of Euros 43,348 thousand.

In 2020 the company received no dividends from R Cable (Euros 5,442 thousand in 2019).

At 31 December 2020, the investments in Grupo R Cable and Telecable were pledged to secure compliance with the Company's financing obligations (see note 11).

Similarly, the Company incorporated EKT Cable y Telecomunicaciones, S.L. in 2016 with paid-up capital of Euros 3 thousand.

Similarly, the Company also has an interest in an associate, which is a 20% direct stake in Hamaika Telebista, domiciled in Bilbao, whose business drives the creation of local television channels that broadcast their programmes in Basque.

None of the subsidiaries of the Company are listed on the stock exchange.

Impairment

The Company assesses the existence of impairment indicators every year and, where detected, performs a recoverability analysis. During 2020, since the subsidiary R Cable y Telecable has generated pre-tax losses of Euros 7,379 thousand, a recoverability analysis has been performed thereon in accordance with the Business Plan 2020-2025, updated for 20201 based on the approved 2021 budget. The main assumptions are growth through the expansion of the R and Telecable brands in León and Cantabria, the continued achievement of efficiencies, maintaining an EBITDA margin over income of between 48% and 52%, a CAPEX to income ratio of between 17% and 20%, as well as financial variables including a discount rate (6.15%) and a growth rate from the fifth year of 1.24%. Based on the analysis carried out, no evidence of impairment has been detected.

Furthermore, Management has performed a sensitivity analysis on the key assumptions, finding that reasonable changes in each one do not indicate any impairment.

NOTE 9.- Financial assets

9.1. Classification by category

Details of the Company's financial assets are as follows:

Investments in Group Available-for-sale Loans and receivables Total companies financial assets

31.12.20 31.12.19 31.12.20 31.12.19 31.12.20 31.12.19 31.12.20 31.12.19

Non-current Equity instruments (note 8) - - 1,116,875 1,116,875 1,016 1,016 1,117,891 1,117,891 Loans extended Group companies and associates (note 15.2) 689,151 672,612 - - - - 689,151 672,612 Third parties 5,517 3,649 - - - - 5,517 3,649 Other non-current assets 257 272 - - - - 257 272

694,925 676,533 1,116,875 1,116,875 1,016 1,016 1,812,816 1,794,424

Current

Trade receivables 61,100 41,777 - - - - 61,100 41,777 Investments 360 115 - - - - 360 115 Cash and cash equivalents 14,161 41,620 - - - - 14,161 41,620

75,621 83,512 - - - - 75,621 83,512

Loans to Group companies include the following:

• Loan extended to R Cable on 27 November 2015, which was later modified on 10 November 2016, as well as a credit account on 26 July 2017 and accrued interest payable since June 2016 for Euros 226,160 thousand. This credit account earns annual interest of 5% (payable annually) and repayments will be made in a single sum upon maturity on 27 November 2022.

• Credit acquired in 2017 during the acquisition of the stake in Parselaya, S.L (merged with Telecable de Asturias, S.A. at 1 January 2018) (note 8), which was renegotiated and turned into a credit account with a Euros 255 million limit and credit granted to Telecable de Asturias, S.A. (merged with R Cable at 1 January 2019) for a maximum of Euros 400 million. These credits earn interest at an annual rate of 5%, payable annually, and repayment is payable in a single sum on 26 July 2024. The balance of this account at 31 December 2019 amounts to Euros 462,991 thousand.

The impairment analysis of these loans is analysed in conjunction with the impairment analysis of investments explained in note 8.

The subsidiaries' credits and bank accounts have been pledged to secure repayment of financing extended (see note 12).

Estimated income pending invoicing at the end of the year amounts to Euros 7,073 thousand (Euros 7,633 thousand at 31 December 2019).

The carrying amount of financial assets at amortised cost does not differ significantly from their fair value.

9.2. Impairment

The Company calculates the provision for impairment of trade and other receivables using information available on the recovery of balances.

Details of the ageing of unimpaired trade balances past due are as follows:

Past due 31.12.20 31.12.19 From 0 to 30 days 5,462 7,174 From 31 to 90 days 3,847 3,665 From 91 to 180 days 3,411 3,091 From 181 to 365 days 2,859 466 More than 365 days 6,610 2,655

22,189 17,051

Not past due Invoiced 27,119 15,442 Pending invoice 11,765 9,284 38,884 24,726

61,073 41,777

Details of the provision for impairment of trade and other receivables is as follows:

31.12.20 31.12.19 Gross balance 69,189 51,552 Impairment (8,116) (9,775)

61,073 41,777

Movement in the provision for impairment of trade and other receivables is as follows:

2020 2019 Opening balance 9,775 9,056 Charge (note 13.4) 1,091 2,427 Write-offs (2,750) (1,708) Closing balance 8,116 9,775

NOTE 10.- Equity

10.1. Capital

At 31 December 2020, subscribed capital is represented by 178,645,360 shares with a par value of Euros 3 each.

At their annual general meeting held on 12 November 2015, the shareholders authorised the board of directors to increase share capital within 5 years up to half of the share capital existing at the agreement date, with the power to exclude the preferential subscription right up to a limit of 20% of capital at the time of delegation.

Details of shareholders at 31 December 2020 are as follows:

Number of shares % ownership Zegona Limited 38,087,190 21.32% Kutxabank, S.A. 35,514,698 19.88% Corporación Financiera Alba 19,650,990 11.00% Other 85,392,482 47.80% 178,645,360 100.00%

10.2. Share premium

In accordance with prevailing legislation, the share premium is a freely-distributable reserve, provided that equity exceeds share capital.

10.3. Reserves and prior years' profit

Details of this caption are as follows:

31.12.20 31.12.19 Reserves Legal reserve 68,124 62,097 Voluntary reserves 61,574 62,629 129,698 124,726

The legal reserve has been appropriated in compliance with article 274 of the Spanish Companies Act, which requires that companies transfer 10% of profits for the year to a legal reserve until this reserve reaches an amount equal to 20% of share capital. Until the legal reserve exceeds this limit, it may only be applied to offset losses if no other reserves are available.

10.4. Own shares

At 31 December 2020 the Company has 173,596 shares in its own share portfolio that were acquired at an average weighted cost of Euros 8.82 per share (170,366 own shares were acquired at an average weighted cost of Euros 8.64 each at 31 December 2019).

10.5. Other equity instruments

On 27 January 2020, the Board of Directors approved a new long-term Incentive Plan for the 2020-2022 period, geared towards a group of executives and employees of the Company, as well as the Chair of the Board of Directors, the CEO and the Secretary. The general shareholders' meeting held on 2 June 2020 approved this Plan.

The plan's main features are:

- Description: The plan offers beneficiaries an extraordinary variable incentive payable, in part or in full, in Euskaltel shares, which will enable beneficiaries to share in up to 4% of the total value created for shareholders linked to the appreciation of Euskaltel stock between 5 June 2019 and 31 December 2022. In order for the incentive to vest in full, certain Group operating variables must also be achieved. The extent to which these variables are achieved will determine the accrual of up to 15% of the total incentive amount.

- Term: The Plan shall be valid for three years following its approval by the Board on 27 January 2020 and it shall end on 31 December 2022 (the "Accrual Date").

- The specific incentive amount is distributed among beneficiaries using the proportions calculated by the Board, based on the recommendations of the Remuneration Committee.

- Incentive accrual: For the Incentive to accrue, the beneficiary must have an ongoing employment or business relationship with the Company on the Plan's accrual date, i.e. the 31 December 2022.

- The number of shares receivable by each beneficiary will be calculated by dividing the percentage of the total incentive allocated to each beneficiary by the share's reference value on the accrual date.

- The Plan sets out change of control clauses, considered as the acquisition of a stake greater than 30%, common to incentive plans of a similar nature, which may determine the early accrual, in whole or in part, of the Plan.

The main data and assumptions used by Management to calculate the plan's fair value are as follows:

- Grant dates: two different grant dates have been determined, based on the date on which the beneficiaries have reached a shared understanding of the terms and conditions of the agreement.

o June 2020 (date on which the Plan is approved by the shareholders' meeting). o November 2020 (date on which certain beneficiaries have accepted the plan's terms and conditions).

- The fair value of the options granted has been calculated using the Monte Carlo measurement model, with the main model inputs being the grant date, the spot price of the shares at 2 June 2020 and 10 November 2020, the standard deviation of the expected return on the share price of 31.78%, the option's life and the annual risk-free interest rate of -0.31% in order to measure the plan as of June and -0.52% to measure the plan as of November. The estimated volatility in the standard deviation of the expected share price return is based on statistical analyses of daily share prices over the last two years.

- No rotation of beneficiaries (remaining in employment until the "accrual date").

- No change of control in the Company that gives rise to early vesting.

- The operational variables set by the directors are fully achieved.

In accordance with the measurement standard described in note 4.17, the Company has recorded an equity instrument of Euros 2,855 thousand with a charge to Personnel expenses in the income statement (see note 13.3).

NOTE 11.- Financial liabilities

11.1. Classification by category

Details of financial liabilities classified by category are as follows:

Debts and payables Liabilities held for trading 31.12.20 31.12.19 31.12.20 31.12.19

Non-current

Related parties - - Non-current loans received (note 15.2) 153,251 146,501

Unrelated parties - - Loans received 1,266,738 1,225,082

Hedging derivatives - - 202 804 Other financial liabilities 38 34 - -

1,420,027 1,371,617 202 804

Current

Related parties - - Other financial liabilities (note 15.2.) 8,654 - - - Current loans received (note 15.2) - 6,750

8,654 6,750

Unrelated parties - - Bonds and other marketable securities 131,600 131,000 - - Loans received 6,803 46,516

Dividend payable 25,010 25,010 - -

Suppliers 84,882 31,924 - - Asset purchase payables 32,493 29,417 - -

Salaries payable 5,231 8,947 - -

294,673 279,564 - -

As a result of the agreements reached during the stock flotation process, the Company negotiated a new loan comprising two tranches of Euros 235 million each (tranches A-1 and B-1) and a revolving credit facility of Euros 30 million (the limit of this facility was changed in 2017 to Euros 300 million). At 31 December 2020, Euros 150 million has been drawn down from the credit facility (Euros 150 million at 31 December 2019).

For the acquisition of R Cable and Telecomunicaciones Galicia, S.A. (see note 1), the Company amended the initial agreement and borrowed two additional tranches (tranches A-2 and B-2) of Euros 300 million each, and an institutional loan (tranche B-3), underwritten by four financial institutions, also for Euros 300 million.

In 2017, the maturity of the long-term credit facility was extended by one year until June 2021 and a new tranche of institutional debt (B4) was contracted amounting to Euros 835 million to repay the outstanding amounts of tranches A1, B2 and B3.

loans may be demanded if the coefficient exceeds the parameters established. Early repayment of the loan may also be demanded if there is a change in control, understood as the acquisition of more than 50% of shares with voting rights. The coefficient at 31 December 2020 amounts to a net consolidated debt of 4.2 times consolidated EBITDA, which does not exceed the parameter established of net consolidated debt of 4.5 times consolidated EBITDA.

The following changes were made during 2020:

- The A-2 tranche amounting to Euros 215,000 thousand has been replaced with a new B-5 tranche for the same amount, a single repayment at 31 December 2023 (until this change, the tranche had partial repayments) and interest at 2.5%.

This amendment has not led to a significant change in the debt in qualitative or quantitative terms, since the future cash flows of the debt based on the new conditions, updated to the effective interest rate of the previous debt, differ from the old debt by less than 10%.

A summary of the main characteristics of the tranches at the reporting date are as follows:

Nominal amount outstanding Initial Tranche 31.12.20 31.12.19 nominal Interest Maturity amount

B-1 235,000 235,000 235,000 2.75% 27.11.24

A-2 - 215,000 300,000 2.00% 31.12.23

B-4 835,000 835,000 835,000 2.75% 27.11.24 B-5 215,000 - 215,000 2.50% 31.12.23 Credit facility 150,000 150,000 300,000 2.25% 31.12.23 1,435,000 1,435,000 Current portion - 45,000 Non-current portion 1,435,000 1,390,000

All tranches are repayable in a single sum as they fall due.

Details of the repayments of non-current loans with financial institutions, including interest, are as follows:

1 year 2 years 3 years 4 years Total

39,732 47,006 422,918 1,117,925 1,627,582

The Company may not distribute extraordinary dividends or redeem own shares in its own share portfolio if the coefficient referred to in this note exceeds 4 after the extraordinary dividend distribution. However, the financing contract stipulates that there shall be no restrictions on the payment of dividends with profit from ordinary activities.

Upon availing of the financing arrangements, the Company pledged certain shares in Group companies, loans granted and bank accounts as collateral. At the general meeting held on 27 June 2016, the shareholders also approved the lodging of a collateral right over the Parent’s telecommunications network.

Thus, the Company holds undrawn current credit facilities totalling Euros 28.25 million.

During 2017 the Parent obtained interest rate hedges to cover possible variations in the Euribor exceeding 1% in exchange for the payment of a fixed monthly premium. These hedges expire in February 2021 and the notional amount covered is Euros 825,000 thousand.

During the period September to December 2020, Euskaltel issued promissory notes for a nominal value of Euros 131,600 miles the context of a short-term commercial paper issue implemented in 2017 for an overall limit of Euros 200 million. These promissory notes have maturities between January and December 2021 and accrue interest at an average annual rate of 0.27%.

Other financial liabilities with related parties (current) includes the liability recognised in 2020, deriving from a new estimate of the contingent considerations payable to Zegona Limited, S.A. (note 10.1) stipulated in the contract to purchase the subsidiary Telecable de Asturias, S.A.U. This contract included a clause requiring the Company to pay an amount equivalent to 35% of certain tax credits. In 2019, the Company paid Euros 981 thousand for this item, aligned to the liability previously generated as the estimated fair value of this debt. The liability for 35% of certain unrecognised tax credits was also not recognised as it was not considered likely. A binding consultation was submitted to the Spanish Tax Authorities (DGT) regarding this. Although a response to this consultation has still not been received, in 2020 the sole director of the subsidiary RCable y Telecable Telecomunicaciones S.A.U (a company resulting from the merger of RCable Telecomunicaciones Galicia S.A.U. and Telecable de Asturias S.A.U. in 2019) has re-analysed this matter with its tax advisors, concluding that these assets are recoverable and therefore a deferred tax asset of approximately Euros 25 million has been recognised. Consequently, the Company has recognised a liability of Euros 8,654 thousand, considering that the circumstances exist for its recognition. This liability has been taken to finance costs (note 13.5).

The fair values of debt and payables do not differ significantly from their carrying amount. The fair value is calculated based on cash flows discounted at a rate pegged to the effective interest rate for borrowings.

11.2. Suppliers

Details of the average payment period referred to in the Spanish Institute of Accounting and Auditing's Resolution of 29 January 2016 are as follows:

2020 2019

Average supplier payment period (in days) 52.88 46.83

Transactions paid ratio 56.21 47.04

Transactions payable ratio 45.34 46.08

Total payments made (thousands of Euros) 323,233 243,169

Total payments payable (thousands of Euros) 142,766 67,404

The average payment period is the time between delivery of the goods or provision of the services by the supplier and payment of the transaction in accordance with the methodology described in article 5 of the Resolution.

NOTE 12.- Taxes

12.1. Balances with public entities

At 31 December 2020 and 2019 balances with public entities are as follows:

2020 2019 Current tax liabilities 84 2,727

Value added tax 473 3,285 Social Security 415 399 Withholdings and payments on account 327 339 Other liabilities 2,277 2,370 3,576 9,120

The Company has open to inspection all main applicable taxes for the years still open to inspection.

12.2. Income tax

A reconciliation of net income and expenses for the year with the taxable income is as follows:

Profit and loss 2020 2019 Income and expenses for the year 40,936 60,261 Income tax (7,495) (7,561) Profit before tax 48,431 67,822 Permanent differences (1,419) (6,888) Temporary differences (1,404) (999) Taxable income 45,608 59,935

Permanent differences in 2019 mainly comprised dividends from Group companies (see note 8).

The relationship between the income tax expense and the profit for the year is as follows:

Profit and loss 2020 2019 Income and expenses for the year 48,431 67,822

Tax at 24% 11,623 16,277 Permanent differences (341) (1,653) Prior years' adjustments (654) (371) Deductions for the current year (3,133) (3,662) Prior years' capitalised deductions - (3,030) 7,495 7,561

Details of deferred tax assets and liabilities by type of asset and liability are as follows 32

31.12.18 Source Reversal Other 31.12.19 Source Reversal Other 31.12.20 Deferred tax assets Provisions 767 510 (750) 239 766 - (337) 1,552 1,981 767 510 (750) 239 766 - (337) 1,552 1,981

Deductions on tax due 124,319 6,692 (4,675) (49) 126,287 3,133 (4,233) (681) 124,506 125,086 7,202 (5,425) 190 127,053 3,133 (4,570) 871 126,487

Other corresponds to differences between estimated income tax and income tax declared and capitalisation of prior years’ tax credits and tax rate adjustments.

The deductions mainly arise due to investments in new fixed assets. The application of these deductions is limited to 35% of gross tax payable.

The income tax expense is calculated as follows:

Profit and loss 2020 2019

Current tax Taxable income at 24% 10,946 14,384 Deductions (4,233) (4,675) Prior years' adjustments and other 216 (181)

6,929 9,528 Deferred tax Source and reversal of temporary differences 337 240 Change in deductions 1,100 (2,017) Prior years' adjustments (871) (190)

7,495 7,561

At 31 December 2020 and 2019, the Company has no unrecognised tax credits or tax loss carryforwards.

The Company expects to apply tax loss carryforwards and tax credits for deductions amounting to Euros 1,002 thousand in its 2021 income tax return.

Given the significance of the capitalized tax credits, the Company performs an annual recoverability analysis even if there is no indication of impairment. Euskaltel, S.A.’s business plans show that the Company will have sufficient future taxable income against which tax credits capitalised at year end can be utilised in the next 15- 20 years.

The key assumptions used by Management for the tax projections are future growth through national expansion, EBITDA/Revenue margin in line with that contemplated in the business plan mentioned above and a growth rate after the five-year period of 1.24%.

NOTE 13.- Income and expenses

13.1. Revenues

The Company's activity primarily includes: the provision of combined broadband, Pay TV, mobile and landline telephone services to residential customers, freelancers (“Small Office / Home Office – SOHOs”), small and medium-sized enterprises (SMEs), large accounts, the public sector and the wholesale market and others. For internal management purposes, the Company differentiates between the following types of customers: • Mass market 33

• Business • Wholesale market and others

Details of revenues are as follows:

2020 2019 Mass market customers 275,238 260,220 Business 48,654 47,178 Wholesale and other 54,477 47,146

Total 378,369 354,544

Work performed by the entity and capitalised (10,202) (8,223) Other operating income (37) (17) Revenues 368,130 346,304

Mass market The Company offers customers in this category a combination of landline and mobile telecommunication services, as well as other added-value services which it renders through its fibre-optic network and the virtual mobile operator agreement. These customers receive combined offers of broadband access, Pay TV and landline and mobile telephone services which are invoiced as a bundle at competitive prices. Similarly, for self-employed workers (Small Office / Home Office - SOHOs) we have a specific commercial package for this type of customer, which includes businesses with less than 10 employees. The services we sell include, inter alia, technical support, online support and electronic mail.

Business Customers in this category - SMEs and large accounts (including the public sector) also receive landline and mobile telecommunication services. Our sales team is able to offer, among other aspects, integrated, tailor- made services to financial institutions, large companies, healthcare providers and public entities. • SMEs: We offer a broad array of solutions adapted to businesses with between 10 and 40 employees. Our services include broadband access with speeds of up to 350 Mbps, symmetrical fibre access with speeds of up to 1 Gbps, MPLS access, landline/mobile convergence, IP Switch and advanced IT services.

• Large accounts: Our large accounts include public sector customers and large companies. Large accounts require technically complex solutions that demand tailor-made responses, including fibre access with speeds of up to 1 Gbps, MPLS access, landline/mobile convergence, IP Switch, cloud firewalls and virtual data centres. We offer these types of services through a dedicated sales team that includes engineers who participate in the life cycle of the project (pre-sales, implementation and after sales service).

Wholesale market and others We offer communication services including line access and voice and data services to other operators in the telecommunications sector who use our infrastructure and installations for providing services to their customers. Part of the revenues generated in the wholesale market come from the Company's main direct competitors, to which we provide services such as SDH (Synchronous Digital Hierarchy) line access, Ethernet and Dark Fibre technologies, voice services (which allow distributors to complete the termination of calls originating or ending in our territory) and enabling services, which are based on our BSS networks and mobile backhaul network. We also offer services related to the placement and resale of voice services. Lastly, this caption includes revenue on the services rendered by Euskaltel to group companies.

13.2. Supplies

Details are as follows:

2020 2019 Merchandise used Purchases 39,251 36,821 Changes in inventories (551) 467

38,700 37,288

Subcontracted work Interconnection expenses 66,257 42,754 Other supplies 19,219 16,524

85,476 59,278 124,176 96,566

The increase in interconnection expenses is due mainly to the increase in calls made by Euskaltel customers to other operators during the Covid-19 lockdown and subsequent restrictions and to higher connectivity expenses, both mobile and landline.

Interconnection expenses includes discounts for certain services rendered by third parties, for an amount of Euros 29,313 thousand (Euros 33,288 thousand in the comparative period). These discounts rely on the fulfilment of a certain minimum cumulative consumption until 30 June 2024.

Discounts pending offset amounted to Euros 18,615 thousand (Euros 7,355 thousand at 31 December 2019).

The future consumptions estimate is consistent with the estimate included in the Business Plan approved by the Group. The main premise of the Company’s Business Plan is future growth through nationwide expansion.

Management has prepared a sensitivity analysis for the discounts covering ± 5% changes in expected purchases eligible for discount and there has been no significant change to the estimates made (impact of less than +/- Euros 200 thousand).

13.3. Personnel expenses

Details are as follows:

2020 2019 Salaries and wages 18,361 19,268 Employee benefits expense (other employee benefits expense) 4,450 4,605 Compensation 335 8,630 Other remuneration (note 10.5) 2,295 2,098 Total 25,441 34,601

The average headcount, distributed by category, is as follows:

2020 2019 Executives 26 30 Management 33 31 Other professionals 251 261 310 322

The distribution by gender of the Company's headcount at 31 December 2020 and 2019 is as follows:

2020 2019

Male Female Total Male Female Total Executives 21 5 26 22 4 26 Management 21 14 35 20 11 31 Other professionals 109 142 251 108 145 253

151 161 312 150 160 310

The average number of Company employees with disabilities of 33% or greater during 2020 was one person (one person in 2019).

At the date these annual accounts were authorised for issue, the board of directors of the Company was comprised of 6 men and 4 women (10 men and 3 women at the end of the prior year).

13.4. Other operating expenses Details are as follows:

2020 2019 Advertising 15,263 7,482 Repairs and maintenance 23,283 19,724 Services provided by third parties 19,018 21,278 Other external services and utilities 10,229 11,278 Tax 2,355 6,608 Losses, impairment and changes in provisions for transactions (note 9) 1,091 2,427 71,239 68,797

The increase in advertising expenses is due to campaigns during the year as a result of the national expansion plan launched in 2020 through the Virgin brand.

13.5. Other profit/(loss) Details are as follows:

2020 2019 Contribution to the Euskaltel Foundation 1,202 2,016 Integration costs - 181 Other 3,532 1,316 4,734 3,513

Other profit/(loss) in 2020 mainly includes non-recurring expenses arising from the impact of Covid-19.

13.6. Net finance income/cost

Details are as follows:

2020 2019 Finance income Third parties 316 62 Dividends - 5,442 Group companies and associates 34,887 36,697 35,203 42,201 Finance cost Other financial expenses (notes 8 and 11.1.) (8,654) - On third party loans (46,417) (45,999) (55,071) (45,999)

Exchange gains/(losses) 259 (286) Change in fair value of financial instruments 602 526 Impairment and gains/(losses) on disposal of financial instruments - 9 (19,007) (3,549)

Note 14.- Commitments

14.1. Sale and purchase commitments At the reporting date, the Company has purchase commitments for the following items and amounts, all of which are related to its everyday operations and are expected to materialise in the coming year:

2020 2019 Intangible assets 2,868 2,338 Property, plant and equipment 27,684 11,960 Inventories 9,314 378 39,866 14,676

The increase in commitments is due to the fibre optic network deployment investment explained in note 7 as well as commitments for customer equipment purchases due to the national expansion plan.

14.2. Operating lease commitments

The Company mainly rents locations for its node equipment under operating leases. These contracts have a term of between 10 and 30 years, which is considered significantly lower than the economic life of the buildings in which the equipment is located.

Future minimum payments under operating leases are as follows:

2020 2019 Less than one year 3,718 2,899 One to five years 11,028 9,185 Over five years 11,006 10,265 25,752 22,349

The operating lease expense recognised in the income statement amounts to Euros 4,723 thousand (Euros 4,951 thousand for the same period in 2019).

NOTE 15.- Related party transactions

15.1. Transactions and balances with key personnel

Details of transactions with key Company personnel are as follows:

2020 2019 Board members Executives Board members Executives

Salaries and wages 991 1,391 991 1,535

Other remuneration Compensation - - 1,708 3,490 Incentive plan - - 810 1,288 Incentive plan (share-based) 1,722 777 - - Other 1,454 60 990 72 4,172 2,228 4,499 6,385

Compensation to directors in 2019 includes the amounts relating to the dismissals of the former chairman and the former CEO.

The Company has no pension or life insurance obligations with current or former board members, or with other members of senior management.

Civil liability insurance premiums paid by the Company to cover damages that could arise from actions or omissions in the performing of duties amounted to Euros 67 thousand (Euros 44 thousand in 2019).

15.2. Transactions and balances with other related parties

Details of transactions with significant shareholders and Group companies are as follows:

2020 2019 Significant Group Significant Group shareholders companies Total shareholders companies Total Sales 8,816 32,349 41,165 6,785 27,098 33,883 Services rendered - (5,770) (5,770) (30) (2,429) (2,459) Supplies (9) - (9) - - - Finance income and dividends - 34,887 34,887 - 42,139 42,139 Finance cost (13,651) - (13,951) (5,056) - (5,056) (4,844) 61,466 56,322 1,699 66,808 68,507

Details of outstanding collections and payments related to transactions with significant shareholders and Group companies are as follows:

31.12.2020 31.12.2019 Current Non-current Current Non-current

Key shareholders Other financial liabilities (note 11) (8,654) - - - Receivables 812 - - - Credit accounts 3,490 - 41,528 - Loans received (note 11) - (153,251) (6,750) (146,501)

Group companies Payables (5,481) - (2,795) - Receivables 15,123 - 12,972 - Dividend receivable - - - - Loans granted (note 9) - 689,151 - 672,612

5,290 535,900 44,955 526,111

The directors of the Company have not carried out any transactions other than ordinary business or applying terms that differ from market conditions with the Company or any other Group company.

15.3. Conflicts of interest

At the 2020 and 2019 reporting date no member of the Company's board of directors or their related parties, as defined in the Spanish Companies Act, has communicated any direct or indirect conflict of interest with the Company.

NOTE 16.- Audit fees

The fees corresponding to the services provided by KPMG Auditores, S.L., the auditing company of the Company's annual accounts during the years ended 31 December 2020 and 2019, regardless of when they are invoiced, are as follows:

2020 2019 Audit services 124 144 Other assurance services 45 45 Other services 5 6 174 195

Under Other assurance services are services related to limited reviews. In the year ended 31 December 2020, other firms affiliated with KPMG International invoiced the Company for professional service fees totalling Euros 12 thousand relating to the issue of ISAE 3000 reports on the Non- Financial Information Statement.

NOTE 17.- Environmental information

To develop its commitment to environmental issues, an environmental strategy has been prepared, which has been included as part of the 2020-2025 Strategic Sustainability Plan in 2020. The Euskaltel Group’s commitment to environmental management excellence was the starting point for establishing an Environmental Management System in accordance with ISO 14001.

In accordance with this commitment, Euskaltel decided to voluntarily joint the EMAS III Regulations in 2004. The EMAS III Environmental Statement, which is verified by AENOR and includes our Company’s carbon footprint, is evidence of our commitment to transparency with our stakeholders.

The 2020-2025 Strategic Sustainability Plan was defined and launched in 2020. One of its objectives is environmental management and combating climate change. Within the framework of the activities carried out in the environmental field:

• Renewal of the Euskaltel Group's Environmental Management System certification in accordance with ISO 14001, by a certified third party (AENOR) as renewed annually since 1999. • Renewal of R Cable y Telecable's Energy Management System in accordance with standard ISO 50001 by a reputable and certified third party (AENOR). • Verification of the EMAS Environmental Statements by a recognised third party (AENOR) for Euskaltel, R Cable and Telecable, having updated the corresponding registrations in the Environmental Management Audit System (EMAS). • Registration on the Carbon Footprint Registry of the Ministry for Ecological Transition of Euskaltel, R Cable and Telecable's footprints. • Performance of the Life Cycle Analysis of the Euskaltel and R Cable Virtual Data Centre, in order to measure the environmental impact of the Virtual Data Centre throughout its life cycle, from procurement of raw materials to their end of life. This project has been developed within the framework of our membership of the Basque Ecodesign Center and in collaboration with Ihobe. • Also as part of the Basque Ecodesign Center, a pilot project has been launched to define “green” private purchasing criteria on products and services acquired by the group. • The Shareholders’ Meetings held in 2020 and the Euskal Encounter event have been certified as sustainable events under the Erronka Garbia certification by IHOBE.

Energy audits have been carried out as required by Royal Decree 56/2016.

NOTE 18.- Guarantees

The Company has to submit certain guarantees as part of its everyday commercial activity for concession and spectrum tenders derived from legal obligations through its participation in the development of the telecommunications sector, for network deployment licences from public administrations, and to comply with its long-term contractual obligations with service providers.

The Company has extended guarantees to safeguard the working conditions of employees hired by the companies with which the agreements were reached to outsource certain services that in prior years were rendered in- house.

As a result of the Company's financing, pledges on certain assets have been extended (see note 11).

The Company does not estimate that the guarantees extended would give rise to any additional liabilities in the financial statements.

NOTE 19.- Subsequent events

On 15 December 2020, the Company’s Board of Directors agreed to pay an interim dividend against 2020 results for a gross amount of 14.0 cents (Euros 0.140) per share outstanding with dividend rights (which amounts to a maximum dividend of Euros 25 million). This interim dividend, totalling Euros 25 million, was paid to shareholders on 12 February 2021.

Directors’ Report for 2020 Euskaltel, S.A.

(Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.)

CONTENTS 1. Introduction 2. Business overview 3. Corporate structure 4. Board of directors 5. Shareholder structure 6. Macroeconomic and industrial climate 7. Commercial activity and customer relations 8. Marketing activity 9. R&D&i activity 10. Economic-financial activity and key business indicators 11. Financial risks 12. Legal factors and regulatory framework 13. Corporate governance 14. Share price evolution 15. Outlook and events after the reporting period 16. Acquisition of own shares 17. Definition of alternative performance measures 18. Annual Corporate Governance Report 19. Non-financial information

1.- Introduction

Euskaltel, S.A. (hereinafter Euskaltel) was incorporated with limited liability under the Spanish Companies Act on 3 July 1995. Its statutory activity consists of the installation, management, development, execution, operation and marketing and sale of telecommunications networks and services in accordance with prevailing legislation, as well as the marketing and sale of goods required to carry out these services.

The Company was created by the Basque Government and three savings banks (BBK, Kutxa and Vital) in 1995 to become the Basque Country’s alternative telecommunications operator and, thus, bring an end to Telefónica’s monopoly over the sector.

On 1 July 2015 the Company's shares were admitted to trading on the Barcelona, Bilbao, Madrid and Valencia stock exchanges.

All of the shares in R Cable y Telecomunicaciones Galicia, S.A. (hereinafter R Cable) were acquired on 27 November 2015. This company was incorporated in A Coruña on 1 August 1994.

On 26 July 2017 Euskaltel acquired all of the shares in Telecable de Asturias, S.A.U. (hereinafter Telecable), which was incorporated in Oviedo on 29 December 1994.

In 2019 the boards of directors of R Cable y Telecomunicaciones Galicia, S.A. and Telecable de Asturias, S.A. approved the merger of these companies with the first being the absorbing company. On 17 June 2019, R Cable y Telecomunicaciones Galicia, S.A. changed its name to R Cable y Telecable Telecomunicaciones, S.A.

The Euskaltel Group is the leading optic fibre telecommunications group (broadband, phones, Pay TV and convergent telecommunications services) in the north of Spain, characterised by its strong roots and commitment to the regions of the Basque Country, Galicia and Asturias, where it has traditionally developed its activities through its operators Euskaltel, R Cable and Telecable, and more recently in Navarre, La Rioja, León, Cantabria and Catalonia and in the rest of Spain with Virgin telco, which launched on the market in May 2020.

2020 has been characterised throughout by the impact of the coronavirus pandemic. As a results of the restrictive measures taken by governments during 2020 to contain the spread of Covid-19 (social distancing, lockdowns, limiting the free movement of people, closing public and private premises, except those covering basic needs and health facilities, closing borders and drastically reducing air, sea, rail and road transport), the global economy has been significantly affected.

The telecommunications sector in particular has seen a rise in traffic as a result of customers' increased communication and entertainment needs, which has led to greater uses of telecommunications services. In addition, the increase in traffic has required action to be taken to expand the network's capacity so as to ensure connectivity and be able to successfully meet the increased demand for services.

During the state of emergency (March-May 2020), restrictions were imposed on portability of telecommunication services in Spain, leading to a reduction in the growth rate of new customer registrations, which was compensated for by fewer customer cancellations, resulting in a stable customer base. Once these limitations ended, the market returned to its usual business dynamic.

2.- Business overview

Essentially through its proprietary fibre network and wholesale supplier agreements, Euskaltel provides ICT solutions to cover its customers' full communication cycle with a wide range of technological services from fibre, landline and mobile phones, digital TV and broadband to digital transformation processes, Cloud solutions, IoT (the Internet of Things), Big Data, Artificial Intelligence, technology for Smart Cities and Industry 4.0.

Euskaltel recently signed an agreement with Orange allowing it to access 5G technology as a Mobile Virtual Network Operator from 1 January 2022. This agreement guarantees customers access to the most advanced mobile telecommunications services via a quality 5G network, and secures the necessary capacity to respond to all new mobile data service needs that users might have in the future.

Euskaltel provides its services through the Euskaltel, RACCTel+ and Virgin telco brands.

Mass market

A summary of the main services rendered to mass market customers is as follows:

• Bundles: Euskaltel offers its customers the option to subscribe to a range of services in bundles comprising multiple services (high-speed broadband, Pay TV, landline and mobile telephone) at competitive prices.

The products that integrate the different bundles are broken down as follows:

• Broadband: The new generation fibre optic network, fully invested, enables the company to offer stand- out products at ultra-high speeds. At 31 December 2020, Euskaltel renders 348,687 broadband services to mass market customers.

• Pay TV: A wide selection of digital TV programming, including basic and premium bundles, and also Everywhere TV (sold under the "Edonon", “Tedi” and “TV conmigo” brands), functionalities of VoD and PVR. The company offers access to premium content with the most popular local offering. At 31 December 2020, the company offers Pay TV services to 237,638 mass market customers.

• Mobile phones: At 31 December 2020, Euskaltel has 687,284 postpaid lines.

• Landline phones: Euskaltel offers landline services with unlimited national calls to landlines and a wide range of price plans for landline to mobile calls and landline to international numbers.

Business market

Details of the main services rendered to business customers, by business size, are as follows:

• SMEs: Euskaltel offers a range of solutions for medium-sized businesses with relatively high tech needs. These services include broadband access with speeds of up to 600 Mbps, symmetrical fibre access with speeds of up to 1 Gbps, MPLS Network, landline/mobile convergence (FMC), IP Switch and advanced IT services. Regarding small enterprises, the degree of standardisation in solutions has increased and the products offered have focused on bundled convergent solutions (mobile, landline and internet), successfully covering the needs of such businesses.

• Large Businesses: Euskaltel’s Large Account customer base includes both public entities and large corporations. Large Accounts have technically complex requirements and the company designs tailor-made solutions based on each customer’s specific needs. These include symmetrical fibre access up to 1 Gbps, FMC, SIP Trunking and MLPS networks in the communications area, but addressing projects and solutions in many other areas such as Cybersecurity (firewall solutions in the cloud, denial of service, etc.), Cloud services (virtual datacentre, disaster recovery, backups, etc., available remotely at data centres located in our territory), Big Data and Artificial Intelligence, with the creation of a specific area for the implementation of such solutions among customers.

Wholesale and Other revenue

• Euskaltel renders communications services to wholesale clients (most of whom are telecommunications companies in direct competition with the Euskaltel Group) including leased lines, data and voice services using Euskaltel’s installations and infrastructures to render services to their customers. Euskaltel renders Leased Lines services in SDH line access, Ethernet and Dark Fibre technologies, Voice Services (which allow distributors to complete calls to end users originating or ending in the Issuer’s territory) and enabling services which are based on Euskaltel’s BSS network and Mobile Core Network.

• Euskaltel also offers mobile enabler and systems enabler services as well as placement and resale of voice services.

3.- Corporate structure

The companies that, along with Euskaltel, S.A., comprise the Euskaltel Group, and the percentage ownership of the Parent in each (direct and/or indirect) at 31 December 2020 are as follows: R Cable y Telecable Telecomunicaciones, S.A.U. (100%) and EKT Cable y Telecomunicaciones, S.L.U. (100%).

Within the process of consolidation as a telecommunications group, the Euskaltel Group has defined a unique organisational strategy for the regions in which it operates, simple and efficient, with an experienced team pursuing excellence, competitiveness, adapting the structures of Euskaltel and R and Telecable to continue its growth, reinforce customer focus, develop communication solutions for businesses and private customers, maximise synergies and, thereby, boost the Group’s results and profitability, while maintaining its deep roots in Galicia, Asturias and the Basque Country.

The key lines of the Group's organisational structure are based on the following:

• An organisation that seeks to achieve best practice in the sector.

• A simple structure: two business units (mass market and business) targeting the whole customer footprint as a single unit.

• Unique technology “factory” that fully integrates the network, the systems and the customer care platforms: opportunities to generate additional synergies, operating leverage and excellent customer care service.

4.- Board of directors

The Board of Directors of Euskaltel is authorised to adopt agreements on all matters that are not allocated by law or the statutes to the General Meeting.

Thus, it is central to the Board’s mission to approve the Company’s strategy and secure the organisation necessary to put it into practice, and to supervise and verify that senior management meets the objectives set and respects the registered activity and corporate interests of the Company.

For these purposes, the full Board of Directors reserves the authority to approve the Company’s general policies and strategies and, in particular, (i) the strategic or business plan and the management and annual budgetary targets; (ii) the investment and financing policy; (iii) the definition of the corporate group structure; (iv) the corporate governance policy; (v) the corporate social responsibility policy; (vi) the risk control and management policy, including tax liabilities and management, as well as the regular monitoring of internal information and control systems; (vii) the dividends policy, the own portfolio policy and, particularly, its limits.

The Board of Directors has the broadest powers to administer and represent the Company. Without prejudice to the above, the Board of Directors may entrust to senior management and to delegated governing bodies the management and day-to-day administration, as well as the dissemination, coordination and general implementation of the Company’s policies and guidelines, in order to focus on the definition, supervision and monitoring of the general policies, strategies and guidelines to be followed by the Company and its Group.

Those powers that are legally or statutorily reserved for the exclusive knowledge of the Board shall not be delegated.

Without prejudice to any legal powers of delegation or proxy held for the execution of specific agreements entered into, the Board shall directly exercise the following competences and powers by its own initiative or at the proposal of the corresponding internal body:

A) In terms of the General Meeting of Shareholders: a) Calling General Shareholders’ Meetings and publishing the corresponding notices. b) Proposing modifications to the articles of association of the Company to the General Shareholders’ Meeting. c) Proposing to the General Shareholders’ Meeting any modifications to the Board Regulations, accompanying the proposal with the corresponding explanatory report. d) Submitting to the General Shareholders’ Meeting a proposal to transform the Company into a holding company by means of “subsidiarisation” or by transferring core activities carried out by the Company to subsidiaries, even if full domain over these is retained. e) Submitting to the General Shareholders’ Meeting proposed acquisitions or disposals of key operating assets, in accordance with the presumption contained in article 160 of the Spanish Companies Act. f) Proposing to the General Shareholders’ Meeting the approval of transactions that would be equivalent to winding up the Company. g) Raising proposals to the General Shareholders’ Meeting regarding the appointment, ratification or re-election of non-independent board members, following a report from the Appointments and Remuneration Committee, or termination of board members. h) Executing the agreements approved by the General Shareholders’ Meeting and carrying out any functions entrusted thereto by same.

B) In terms of the organisation of the Board of Directors and delegation of powers: a) Approving and modifying this Regulation, following a report from the Audit and Control Committee. b) Defining the structure of general powers to be granted by the Board of Directors or the delegated governing bodies.

C) In terms of information to be disclosed by the Company: a) Managing the disclosure of information from the Company to the shareholders, the competent authorities, the markets and the general public in line with criteria of equality, transparency and accuracy. b) Drawing up the annual accounts, directors’ report and proposed distribution of results as well as the consolidated annual accounts and consolidated directors’ report, if any, for presentation to the General Shareholders’ Meeting. c) Approving the financial information to be regularly disclosed by the Company due to its status as a public company.

D) In terms of board members and senior management: a) Appointing and renewing offices within the Board of Directors and the members and internal offices of the Board committees.

b) Appointing board members by co-opting. c) Appointing and relieving board members, as well giving preliminary approval for contracts to be entered into between the Company and the board members to whom executive powers are attributed, detailing remuneration for said executive functions. d) Approving remunerations for each board member, based on proposals from the Appointments and Remunerations Committee, in accordance with the remunerations policy approved by the General Shareholders’ Meeting. e) Approving the definition and modification of the Company’s organisation chart, appointing and relieving senior management (as set forth in article 2), and setting the compensation or termination benefits applicable in the event of dismissal. f) Approving the remuneration policy for senior management posts and the basic conditions of their contracts, based on any proposals made by the CEO and following reports from the Appointments and Remunerations Committee. g) Regulating, analysing and ruling on any conflicts of interest and transactions linking the Company to its shareholders, board members and senior management staff, or persons connected to them. h) Authorising or waiving obligations deriving from the duty of loyalty, in accordance with prevailing legislation.

E) In terms of other duties: a) Formulating the dividends policy and the corresponding proposed agreements to the General Shareholders’ Meeting on the distribution of results and other forms of remuneration for shareholders, and agreeing on the payment of interim dividends, if any. b) Acknowledging merger or demerger operations, concentration or global assignment of assets and liabilities affecting any of the Group’s key companies. c) Approving investments, divestments or any type of operation that, due to its significant amount or special characteristics, may be strategic or entail special tax liability, unless its approval corresponds to the General Shareholders’ Meeting. d) Creating or acquiring shareholdings in special purpose entities or entities domiciled in countries or territories considered to be tax havens, as well as any other similar transaction or operation which, owing to its complexity, could undermine the group’s transparency. e) Approving related-party transactions that are defined by prevailing legislation, subject to a report by the Audit and Control Committee. f) Issuing an opinion on all public takeover bids made on securities issued by the Company. g) Executing the Company’s own portfolio policy within the framework of the authorisation of the General Shareholders Meeting. h) Drawing up the Company’s Annual Corporate Governance Report and the annual sustainability report, as well as the annual report on the Directors’ remuneration policy. i) Ruling on proposals submitted by the Chairperson of the Board of Directors, the CEO or, if applicable the general manager or Board of Directors’ committees.

j) Issuing an opinion on any other matter that falls under its remit and the Board of Directors itself considers of interest to the Company, or that the Regulations reserve for the full Board.

The Board of Directors shall always carry out its functions pursuant to the interests of the Company, i.e. the common interest of all the shareholders of an independent publicly-held company, aiming to fulfil its statutory activity in accordance with prevailing legislation.

When undertaking its functions, the Board of Directors shall be guided by the interests of the company and act with unity of purpose and independence of criteria. Furthermore, the Board will take into consideration legitimate public or private interests that affect the performance of the business activity and, particularly, those of the different stakeholders, the communities and regions in which the Company operates and its workforce. In this context, consideration will be given to the sustained maximisation of the Company’s economic value and its positive outcome in the long term, as a shared interest of all the shareholders and, therefore, as the guiding criteria at all times for the Board of Director’s actions and those of its delegated bodies, internal committees and members.

Euskaltel's Board of Directors is made up of 10 board members (1 executive member, 4 proprietary, 6 independent and 1 external member).

The CEO has been delegated all the powers of the Board of Directors, other than those that cannot be delegated for legal or statutory reasons, or the power to guarantee third parties.

The Board of Directors entrusts to the CEO and the Management Team the management and day-to-day administration, as well as the dissemination, coordination and general implementation of the Company’s policies and guidelines, in order to focus on the definition, supervision and monitoring of the general policies, strategies and guidelines to be followed by the Company and its Group.

Moreover, within the Board of Directors three Committees have been set up:

- Audit and Control Committee. - Appointments Committee. - Remuneration Committee.

None of these three committees has executive functions but rather act as information and consultation bodies, authorised to inform, advise and make proposals within their scope of action. Their actions are governed by the Company’s Articles of Association as well as the Committees’ own internal regulations (Audit and Control Committee Regulations, Appointments Committee Regulations and Remuneration Committee Regulations).

Their main task is to assist, inform and raise proposals to the Board of Directors on matters assigned to them by the Articles of Association, Board Regulations or their own Regulations.

Audit and Control Committee

This Committee’s basic responsibilities fall into the following areas:

(i) internal and external auditing (ii) information and risk management systems (iii) compliance and good governance

Without prejudice to the tasks that may be assigned at any time by the Board of Directors and attributed thereto by the applicable standards, the Committee has, at a minimum, the following basic functions:

(i) To inform the Board of Directors on issues raised by shareholders in matters within their remit.

(ii) Oversee the effectiveness of the company's and the group’s internal control and that of its financial and non-financial risk management systems, including those pertaining to operational, technological, legal, social, environmental, political, fiscal, reputational and corruption-related issues. (iii) Analyse with the external auditors any potentially significant weaknesses in the internal control system detected during the course of the audit. (iv) Supervise the process of drawing up and reporting regulated financial and non-financial information. (v) Propose to the Board of Directors, for submission to the General Shareholders’ Meeting, the appointment, reappointment or replacement of the external auditors in accordance with applicable standards, as well as the conditions of their contracting, and regularly gather from them information on the audit plan and its execution, in addition to preserving their independence in the performance of their functions. (vi) Oversee the company’s internal audit activity. (vii) Establish an appropriate relationship with the external auditors to receive information on issues that may jeopardise their independence, for examination by the committee, and any other matters relating to the auditing procedures, as well as other reporting obligations set forth in auditing legislation and standards. (viii) In any event, the Committee will receive from the external auditors annual confirmation of their independence with regard to the Company or any directly or indirectly-related entities, as well as information on additional services of any kind rendered by the audit firm or persons or entities connected thereto, in accordance with auditing legislation. (ix) Issue an annual report, in advance of the issuance of the auditor’s report on the annual accounts, expressing an opinion on the independence of the external auditors and summarising the Committee’s activities. This report will contain an opinion, in any event, on the rendering of the additional services referred to in the previous section, taken individually or as a whole, other than legal auditing and in relation to the regime of independence or the regulatory standards of the audit. (x) Report, in advance, to the Board of Directors on any matters governed by law, the Bylaws and the Board of Directors Regulations, particularly with regard to: (i) the financial and non-financial information the Company must report periodically; (ii) the creation or acquisition of shareholdings in special purpose entities or entities domiciled in countries or territories considered to be tax havens; (iii) related-party transactions; and (iv) the economic conditions and economic impact of any structural or corporative modifications planned by the Company and, particularly, for the exchange ratio of the proposal.

Appointments Committee

Without prejudice to the tasks that may be assigned at any time by the Board of Directors, the Appointments Committee has the following basic functions:

(i) Assess the necessary competencies, knowledge and experience in the Board of Directors. For these purposes, it shall define the functions and skills necessary in candidates for vacancies and assess the time and dedication needed to effectively perform their tasks. (ii) Set a target for gender balance on the Board of Directors and draw up guidelines on how to reach this target. (iii) Raise to the Board of Directors the proposed independent director appointments for designation by co-option or for their submission to the General Meeting of Shareholders, as well as proposals for re-election or dismissal of these directors by the General Meeting of Shareholders. (iv) Report on the proposed appointment of the remaining board members for designation by co-option or for their submission to the General Meeting of Shareholders, as well as proposals for their re- election or dismissal by the General Meeting of Shareholders. (v) Report on the proposed appointment or dismissal of senior management and the basic conditions of their contracts.

(vi) Examine and organise the succession of the Chair of the Board of Directors and the Company’s CEO and, if applicable, propose candidates for the Board of Directors in order that succession be conducted in an orderly, planned fashion.

Remuneration Committee

Without prejudice to the tasks that may be assigned at any time by the Board of Directors, the Remuneration Committee has the following basic functions:

(i) Propose to the Board of Directors the remunerations policy for directors and general management or senior management posts reporting directly to the Board, executive committee members or board members, as well as the individual remuneration and other contractual conditions of executive directors, ensuring their compliance. (ii) Endeavour to ensure the transparency of remuneration and inclusion of information on the directors' remuneration in the Annual Report, Annual Corporate Governance Report and Directors Remuneration Report, submitting to the Board all the information required for this purpose. 5.- Shareholder structure

Euskaltel is listed on the Madrid, Barcelona, Bilbao and Valencia stock markets since 2015 and its current share capital is represented by 178,645,360 shares with a par value of Euros 3 each, forming a single share category. Share capital is subscribed and fully paid.

The main shareholders of Euskaltel at 31 December 2020 are as follows:

Shareholder % capital

Zegona Group 21.32% Kutxabank Group 19.88%

Corporación Financiera Alba, S.A. 11.00%

6.- Macroeconomic and industrial climate

Macroeconomic environment

2020 has undoubtedly been influenced by the drastic impact of the SARS-CoV-2 coronavirus in health, economic and financial terms, triggering a pandemic that is unprecedented in recent years.

With respect to financial markets, the international economic downturn in March led to a rapid decline and subsequent recovery. The loss of about a third of global equity value was followed -from record market lows and over the next five months- by a recovery of about 50%, which was uneven across sectors and global regions. The impact on securities prices also affected financial instruments such as credit, where the initial decreases were also double-digit and very significant for lower-quality credit.

However, swift action by central banks and governments helped to reduce the tension arising from this situation. This was achieved by means of liquidity injections, purchases of financial assets, fiscal programmes, guarantees and redundancy schemes.

This scenario also accelerated certain global trends related to connectivity, including the fields of remote working and education, logistics and e-commerce.

In the second half of the year, uncertainty over the effectiveness of treatments for the disease, the extent of the second wave and the American elections were among the most relevant financial and economic risks. However, the good news on the effectiveness of the vaccines being developed, which coincided with a Joe Biden victory in the White House, provided visibility for a potential economic improvement and November was very positive for financial markets.

The year ended with global equity markets in positive territory, led by the technology sector and the positive performance of Asian markets, and with a weakening of the US dollar. However, there were major differences from one sector or country to another, to such an extent that some indices ceased to be representative of the market as a whole. For instance, the Ibex35 ended December down -17%, compared to -5% for the Eurostoxx50 or +18% for the S&P500. The differences between sectoral indices, for example, with an industrial bias against other technologies, were significant.

From an economic growth viewpoint, the Covid-19 crisis has led GDP forecasts for 2020 released by the OECD to reflect significantly negative figures for Spain (-11%), the Eurozone (-7.5%) and the USA (-3.7%), unlike China which ended the year with a positive growth rate (+2.3%). The economic recovery forecasts for the next two years are encouraging, however (the Spanish case is an example, with expectations of around +6%).

Finally, with regard to public finances, the major intervention during the crisis has had consequences in terms of public deficit (which will reach 10% according to the Bank of Spain) and debt (public debt over GDP will stand at 120% in 2021).

Industrial Environment

As a result of the restrictive measures taken by governments during 2020 to contain the spread of Covid-19 (social distancing, lockdowns, limiting the free movement of people, closing public and private premises, except those covering basic needs and health facilities, closing borders and drastically reducing air, sea, rail and road transport), the global economy has been significantly affected.

The telecommunications sector in particular has seen a rise in traffic as a result of our customers' increased communication and entertainment needs, which has led to greater uses of telecommunications services. In addition, the increase in traffic has required action to be taken to expand the network's capacity so as to ensure connectivity and be able to successfully meet the increased demand for services.

Once the period of restrictions ended the market went back to its usual business dynamics, with a record number (according to official data from the CNMC) of mobile portabilities in October (758 thousand mobile numbers changed operator in October and 5.4 million in 2020 to October, compared to 6.1 million in the same period of the previous year). Regarding fixed broadband, almost 74 thousand lines were added in October, bringing the total to 15.7 million, of which 11.3 million were FTTH fibre optic lines. In the year to October the market grew by more than half a million broadband lines, against just over 300,000 in the same period in the previous year, an acceleration in market growth driven by demand for telecommunications services due to the impact of Covid- 19 mentioned above. Meanwhile, pay TV continued its upward trend in year-on-year terms, reaching almost 8 million subscribers.

According to the latest quarterly data published by the regulator, revenue from retail services between January and September this year (Euros 17,256 million) fell by 6.0% compared to the same period in 2019, reflecting the impact of the Covid-19 crisis.

The combined market share of the three main operators (Movistar, Vodafone and Orange) continued to fall in both mobile telephony and broadband, thanks to the growth among other operators in the market.

7.-Commercial activity and customer relations

Mass market

As mentioned before, activity in 2020 has been influenced by factors arising from the Covid-19 pandemic.

This did not however stop the Group from moving forward with its planned expansion into the rest of Spain via the Virgin telco brand.

At 2020 year end, there are 443,861 mass market customers. Postpaid lines increase from 589,599 at the end of 2019 to 687,284 at December 2020, an increase of 16.6%. Broadband products reach 384,687, representing 20.5% growth.

Pay TV products are up 4.9% from 212,412 at the end of 2019 to 237,638, an 11.9%.

Business market

The business market has presented income growth for four years running, reaching growth of 3% in 2020.

2020 was undoubtedly a key year in consolidating the foundations of the Group's strategic plan. This strategic plan, launched at the beginning of 2020, has been implemented as planned despite the constraints caused by the emergence of Covid-19, which has had a significant impact on the business sector and therefore on customers in the business market.

In the Business segment, the main organisational changes identified in the previous year continued to be consolidated, involving new approaches in the unification of the commercial model and offerings, and the Unified Operating Model, which have not only enabled the objectives of the business area to be seamlessly aligned but have also shown their suitability and value in the capacity to respond in a swift and coordinated manner to the challenges arising from the situation generated by the pandemic.

Mainly in March, April and May, at the peak of the pandemic, companies required urgent services to give their employees mobility so that they could continue working from home, enabling business continuity in companies and allowing them to prevent their business from being impacted. The quick reaction capacity in the contracting, implementation and deployment of communications services, and the expansion of their capacities in data resources, datacentres and equipment, have been key to providing an adequate response to customers.

As for Large Accounts, in 2020 the strategy of extending the scope of solutions initiated in 2018 continued, on this occasion creating a specific Artificial Intelligence team that includes experienced specialists, tools and solutions aimed at boosting corporate customers’ business and increasing the catalogue of services they already have available.

2020 was again a communication-intensive year in the Business area. Among other issues, the impossibility of establishing face-to-face contact as a result of Covid-19 made it necessary to reinforce other communication channels in order to maintain the contact and proximity that the line of communication and Business branding require under the slogan "Be close, go far".

Likewise, in June 2020 the restructuring of the Large Account corporate website for the Euskaltel brand was completed, concluding the work started in 2019.

Similarly, we continue to promote sponsorship as a sign of our bond and commitment to the region.

The pandemic in 2020 and the difficulties experienced by certain groups have provided us with the opportunity to lend a helping hand to our customers in government and private companies, providing, for example, free mobile data communications services to children in disadvantaged families, facilitating the continuity of training processes, and to care homes to ensure communication with family members, among other initiatives.

In terms of the SME segment, 2020 has confirmed the income growth trend already evident at the end of 2019.

The product work developed in 2019 has been marketed in 2020 with bundled telecommunication solutions for both the Company’s own DOCSIS and FTTH networks and third-party networks through wholesale agreements. This drive was bolstered once again with the launch of new functionalities in the convergent Telco solution (SME Solution).

8.- Marketing activity

In 2020 Euskaltel focused on continuing to give our customers customised offerings that meet their demands, with greater features and more products, enabling us to continue building a solid long-term relationship with our customer base.

During the first stage of the Covid-19 crisis several initiatives were launched to promote connectivity for Euskaltel customers and access to leisure content during lockdown. Until the end of the state of emergency, Euskaltel customers were able to activate bonuses on their mobile phone lines free of charge. This initiative was designed to ensure mobile internet availability particularly for employees in the health sector or groups whose activity was considered essential.

With the opening up of free cinema and children's channels, Euskaltel has collaborated in making the lockdown more bearable for children and adults. Additionally, it provided free access accounts to OTT TV services for all hospitalized patients and their families.

In September we launched a new initiative at Euskaltel for families with reduced resources, consisting of low- price internet access. Through this service, Euskaltel seeks to help the most disadvantaged families and cooperate in reducing the digital divide for children lacking study resources.

Based on high-quality services and without losing sight of customer proximity, the products and services designed and developed by Euskaltel have enabled us to bring new customers and our existing customer base a much more competitive offering.

In May 2020, the Euskaltel Group launched its new Virgin Telco brand, to market a new portfolio of convergent products and services (internet, TV, mobile and landline) nationwide. Internet access starts with very fast 300M symmetrical access (with higher 600M or 1Giga options if customers require more speed); in mobile telephony there is a varied portfolio of rates, which all include unlimited calls and with variable capacity (from 10GB to unlimited gigas); in television, customers can choose between 2 packages of 50 or 90 channels with varied content (series, films, documentaries, sports, music, children's programmes, etc.) and with a 4K decoder that provides customers with the possibility of watching all content on demand; and landline telephony includes calls to landline and mobile phones, which is completely optional for the customer.

This offer stands out on the one hand for having very competitive prices in all services, and on the other in that it is totally flexible and open for customers, who are absolutely free to choose whatever services they wish to sign up for.

In 2020 Euskaltel launched a new convergent offer for Euskaltel consisting of simplifying access to convergent mobile offers, which are much more competitive than existing options in terms of both price and gigabyte capacity. In addition, during summer a new fully modular convergent offer was launched, with a flexible structure that allows customers to receive only internet services, with the option of adding additional mobile, landline and television services.

Thanks to the alliance with Netflix, the world leader in streaming content distribution, Euskaltel has significantly improved the bundling of its services, offering a wider content catalogue.

Similarly, there have been campaigns to renew equipment, looking to offer the best Internet service by providing the best browsing experience, particular using Wi-Fi.

9.- R&D&i activity

The Euskaltel Group’s innovation activity in 2020 has been unified, based on the following mainstays:

• Innovation in TV services.

• 5G pilots.

TV innovation

In terms of product development, in 2020 the focus was on the following areas: launch of Virgin telco, big data to provide information on customer experience and full integration between OTT and operator.

Concerning the launch of Virgin telco, since the service is provided over different networks it has required the development of network integrations to ensure proper service delivery over different technologies. This major technical challenge was successfully met at the beginning of the year, creating one of the most complex grids among Spanish operators.

Specifically in the field of measuring and improving customer experience, the "Euskaltel Tv Analytics" tool has been developed which, based on various technologies, measures different indicators related to customer experience or any service anomaly noted by customers from their viewpoint.

In 2020 the development of major projects commenced that will mark the future of the service: new 4k decoders, new remote control and new applications on mobile devices, PCs and Smart TVs.

Major R&D efforts continue to be invested in the ongoing improvement of TV interfaces and services rendered to the user.

5G pilots

At the end of 2019, the Euskaltel Group took part in the Red.es call for 5G pilots as part of a consortium of companies, and in 2020 it was awarded the programme's support for the Basque Country.

In 2020 the technical work started on the project in which the 5G solution will be piloted for network purposes in a MVNO network sharing model.

Work is also being carried out on different case studies with relevant companies in the Basque industrial sector to validate their applications and business models.

The consortium is made up of several operators, industrial companies and technology centres. In addition, various collaborating entities have been brought in to work on the project.

The case studies are related to the mobility, industry, energy and cybersecurity sectors.

10.- Economic-financial activity and key business indicators

Key performance indicators (KPIs)

The following tables show some of our operating and financial KPIs for the year.

Mass market Year

KPI 2019 2020 Total customers 372,035 443,861 Total RGUs 1,401,192 1,577,580 Landline phones 309,806 303,971 Broadband 289,375 348,687 Pay TV 212,412 237,638 Post-paid mobiles 589,599 687,284 RGUs / sub 3.8 3.6

Deployment continues, both in terms of in-house deployment and also access to new households via agreements to share networks with other operators throughout Spain, allowing access to 85% of the market where we were not present through the Virgin Telco brand, which was launched in May 2020.

Despite the Covid-19 crisis, mass market customer numbers and services to this market have increased. Mobile communications, underpinned by strong performance, improvements in mobile telephony, the possibility of financing purchases of mobile devices and national expansion have all contributed to the strong performance in this area.

Broadband has also grown from 289,375 products in 2019 to 348,687 products at 31 December 2020, an increase on 20.5%. In TV we have reached 237,638 services, up 11,9%.

The Business segment has performed positively in 2019, increasing to 15,263 customers, up 2.9% with regards the number of customers at 31 December 2019.

Financial data Year

2019 2020 Total revenues 354,544 378,369 Y-o-y change 6.7% Mercado masivo 260,220 275,238 Y-o-y change 5.8% Empresas 47,178 48,654 Y-o-y change 3.1% Mayorista y otros 47,146 54,477 Y-o-y change 15.5% EBITDA 165,386 160,219 Margen sobre ingresos 46.6% 42.3% Y-o-y change -3.1% Resultado del ejercicio 60,261 40,936

Inversiones (81,608) (114,430) Y-o-y change 40.2% Cash Flow operativo 83,778 45,789 Y-o-y change -45.3%

Mass market revenues reflect an upward trend for the period, increasing by 6.7% compared to the prior year.

Revenue from the Business market amounted to Euros 48,654 thousand, up 3.1% on the prior year.

Wholesale and other revenue increased by 15.5% to Euros 54,477 thousand.

Ebitda stands at Euros 160,219 thousand at 31 December 2020, reflecting a small decrease in absolute terms compared to the same period last year. This change is as a result of several factors. The gross margin is impacted by the increase in sales of customer equipment, which is offset by a decrease in other costs despite Virgin telco’s solid growth.

At 31 December 2020, investments stood at Euros 114,430 thousand compared to Euros 81,608 thousand at 31 December 2019. This increase is mainly due to the ongoing undertaking of relevant projects by the Euskaltel Group relating to deployment, investments needed to absorb the growth in data traffic experienced by the customer portfolio and also investments made in the network and customer equipment resulting, to a large extent, from the launch of the Virgin Telco project.

Post-tax profit for 2020 is Euros 40,936 thousand compared to Euros 60,261 thousand in 2019.

11.- Financial risks

Our activities are exposed to credit risk, liquidity risk, and market risk, the latter of which includes currency and interest rate risk.

We use financial risk evaluation and mitigation methods suited to our activity and scope of operations, which are sufficient to adequately manage risks.

A summary of the main financial risks affecting us, and the measures in place to mitigate their potential affect, is as follows:

Credit risk

Credit risk is the risk of financial loss to which we are exposed in the event that a customer or counterparty to a financial instrument fails to discharge a contractual obligation. This risk is mainly concentrated in receivables.

The probability of customer credit risk materialising is mitigated by the application of different policies, and the high level of dispersion of receivables. Among the different policies and specific practices are the customer acceptance policy, continual monitoring of customer credit, which reduces the possibility of default on the main receivables, and collection management. Despite Covid-19, the insolvency rate has not increased.

The impact of bad trade debts on the income statement was Euros 1.1 million (Euros 2.4 million in 2019). Aged, non-impaired receivables past due by more than 90 days at 31 December 2020 amount to Euros 12.9 million (Euros 6.2 million at the end of 2019).

Liquidity risk

Liquidity risk is the risk that we will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or other financial assets. Our approach to managing liquidity risk is to ensure, as far as possible, that we have enough liquidity to settle our debts as they fall due, in both normal and stressed conditions, without incurring unacceptable losses or compromising our reputation.

At 31 December 2020 we had a non-current revolving credit facility of Euros 300 million, with Euros 150 million drawn down, and current undrawn credit facilities totalling Euros 28.25 million.

Cash and cash equivalents reflect the amounts available with financial institutions that have high credit ratings.

At 31 December 2020, cash and cash equivalents amounted to Euros 14.2 million (Euros 41.6 million at the end of 2019).

We adjust the maturities of our debts to our capacity to generate cash flows to settle them. To do this, we have implemented a five-year financing plan with annual reviews and periodic analyses of our financial position, which includes long-term projections, together with daily monitoring of bank balances and transactions.

Market risk

Market risk is the risk that changes in prices could affect our revenue or the value of our financial instruments. The objective of managing market risk is to control exposure to this risk, within parameters we consider reasonable, and optimise returns.

Our scope of operations barely exposes us to currency or price risks, which may arise from occasional purchases in foreign currency of insignificant amounts.

Interest rate risks arises on variable-rate loans from financial institutions and related parties, which expose us to fluctuations in future cash flows. To mitigate the risk of the effect of a potential rise in interest rates, during 2017 the Company finalised agreements with certain financial institutions to hedge against increases in the Euribor, over a nominal amount of Euros 825 million, equivalent to 50% of the nominal amount drawn down on loans with financial institutions.

Since the second quarter of 2016, the Group has been settling interest on a quarterly basis, which allows it to closely monitor the performance of interest rates in the financial market.

In March 2017, Euskaltel formally implemented an issue of short-term commercial paper (EuroCommercial Paper Programme -ECP-, “the Programme”), which was registered with the Irish Stock Exchange. The overall maximum limit of the Programme totals Euros 200 million and serves as an alternative to bank financing to cover working capital requirements.

For the year ended 31 December 2020, had interest rates risen by 100 basis points, with other variables remaining constant, profit (after tax) would have fallen by Euros 6.2 million (Euros 7.3 million for the year ended 31 December 2019).

12.- Legal factors and regulatory framework

Euskaltel operates in a sector subject to regulation of retail and wholesale services, universal services, privacy, tariffing and network neutrality.

The rendering of services is exposed to decisions or measures that may be adopted by the Administration, as well as economic sanctions for breaches in the rendering of services.

Measures adopted by the telecommunications industry due to Covid-19

On 15 March 2020, Royal Decree 463/2020 of 14 March, declaring a state of emergency in order to manage the health crisis caused by Covid-19, was published in the Official State Gazette (BOE).

The state of emergency was extended every 2 weeks from the 15 March 2020 until the 21 June 2020.

The telecommunications industry, considered essential, continued to operate, although activities were affected by Royal Decree Law 8/2020, later qualified by Royal Decree Law 20/2020, prohibiting, during the state of emergency, extraordinary sales campaigns, portability operations which required a visit to the customer's or user's home and tariff increases.

Via Resolution of 28 April 2020, the CNMC defined the procedure for returning to the previous state once the exceptional measures adopted during the state of emergency ended. A period of 5 days was set following the end of the state of emergency to return to normal competition and sales dynamics.

On 27 May 2020, Royal Decree-Law 19/2020 of 26 May was published in the Official State Gazette (BOE), adopting additional measures in the agricultural, scientific, economic, employment and social security and tax fields to mitigate the effects of Covid-19. The single repealing provision of this legislation removed, inter alia, the prohibition on portability by fully repealing Article 20 of Royal Decree-Law 8/2020.

As a result, from 28 May 2020, the bans on extraordinary campaigns, the ban on portability and the ban on price increases were abolished.

In addition, article 3 of Royal-Decree Law 19/2020 of 26 May, set out a procedure for paying in instalments and deferring debts in electronic communications services, meaning that electronic communications operators had to grant their subscribers, at their request, payment by instalment and, therefore, the deferral of debts relating to invoices issued for payment from the entry into force of Royal Decree 463/2020 of 14 March, declaring the state of emergency to manage the health crisis caused by Covid-19, and extensions, and up until 30 June 2020, both dates inclusive.

With regard the regulatory measures adopted within the framework of the Covid-19 state of emergency, there are currently no specific measures that regulate the rendering of telecommunications services. The measures for paying in instalments and, subsequently, deferring debt relating to invoices presented for collection until 30 June 2020 are still in force.

Resolution by which agreement is reached to notify the European Commission of the draft measure relating to Market 1/2014 Fixed voice termination.

significant power in the market and imposing certain obligations, as well as reporting to the European Commission and the ORECE.

The Resolution imposes the application of the following prices for a specific glide path:

• From entry into force until 31/12/2019: Euros 0.0643/min. • From 1/01/2020 until 31/12/2020: Euros 0.0593/min. • From 1/01/2021 onwards: Euros 0.0543/min.

These prices will be current until they are amended by the European Commission, if applicable, under the terms set out in the electronic communications code. A single maximum termination rate will be set for voice calls using fixed networks and mobile phones in the European Union.

Proposal for the definition and analysis of markets for local wholesale access provided at a fixed location and central wholesale access provided at a fixed location for mass market products, the designation of operators with significant market power and the imposition of specific obligations (Markets 3a-3b/2014)

On 12 November 2020 the National Markets and Competition Commission agreed to initiate the public disclosure procedure relating to the process for the definition and analysis of markets for local wholesale access provided at a fixed location and central wholesale access provided at a fixed location for mass market products, the designation of operators with significant market power and the imposition of specific obligations (Markets 3a- 3b/2014).

The proposal establishes that both markets are susceptible to ex ante regulation as they are not really competitive, considering that Telefónica de España, S.A.U. has significant strength, and it imposes a number of obligations in relation to fully unbundled access to the copper subscriber loop and access to civil infrastructure.

Public consultation on the review of capacity price at IAP in the NEBA service

On 13 November 2020, the National Markets and Competition Commission agreed to initiate the public disclosure procedure for the process for reviewing the capacity price at IAP in the NEBA wholesale service. Under a Ruling dated 10 January 2019, the CNMC approved the review of the capacity price at IAP in the NEBA wholesale broadband service, setting the prices for 2019 and 2020. The public consultation initiates the procedure for the review of capacity price at IAP in the NEBA wholesale broadband service.

Public disclosure process on the review of the prices of Telefónica's MARCo offer.

On 4 December 2020, the National Markets and Competition Commission agreed to initiate the public disclosure procedure for the process for reviewing the prices of Telefónica's MARCo offer.

In its file the CNMC proposes changing the prices of the MARCo offer.

Proposal for the definition and analysis of the market for high quality wholesale access provided at a fixed location, the designation of operators with significant market power and the imposition of specific obligations (Market 4/2014)

On 16 December 2020 the National Markets and Competition Commission agreed to initiate the public disclosure procedure relating to the process for the definition and analysis of markets for high quality wholesale access provided at a fixed location, the designation of operators with significant market power and the imposition of specific obligations.

This market comprises two categories of wholesale services used to provide services to business customers (terminal leased lines and business broadband indirect access, in Telefónica's case, included in the ORLA and NEBA business offerings).

The proposal establishes that the market for high quality wholesale access provided at a fixed location in Spain is a market susceptible to ex ante regulation as it is not truly competitive, considering that Telefónica de España, S.A.U. has significant strength, imposing various obligations and revising the prices set in the Leased Line Reference Offer.

Cost of the universal service for 2017 and 2018 (calculation of cost)

A CNMC Resolution dated 8 April 2020 approved the net cost of the universal service for electronic communications presented by Telefónica de España, S.A.U. in 2017, amounting to Euros 14.62 million. Subsequently, on 26 November 2020 the CNMC proposed to change the net cost of the universal service incurred by Telefónica de España, S.A.U. in 2017 to Euros 13,834,175.

Concerning the net cost of the universal service for 2018, the CNMC has issued a ruling approving the verification of the statement on the net cost of the universal service made by Telefónica de España for 2018, mentioning the need to change the initial calculation presented by Telefónica.

Universal service elements and designation of the mandatory operator

In accordance with Order ECE/1280/2019 of 26 December and Order ECE/2020 of 7 January, Telefónica de España, S.A.U. has been designated to render the elements of universal service relating to the supply of public electronic communication network connections and rendering the telephony service available to the public and the supply of a sufficient offering of public pay phones. The obligation to render these services extends, in the first instance, to 1 January 2023 and, in the second, to 1 January 2022.

Grounds for termination are expressly stated to be any modification of the scope, configuration, financing or any other essential matter regarding the universal service through the national regulations that must be ruled in transposition of the Electronic Communications Code approved on 11 December 2018 by EU Directive 2018/1972 of the European Parliament and the Council. To date, the preliminary draft of the General Telecommunications Law reported by the CNMC on 4 December 2021 has been submitted for public consultation.

Main operator

On 22 December 2020 the CNMC passed a Resolution establishing and making public the list of operators who, for the purposes of article 34 of Royal Decree- 6/2000 of 23 June, are considered to be the main operators in the national landline and mobile telephony markets.

This resolution considers Euskaltel as a main operator of landline telephony in 2019, adding the share of R Cable and Telecable landlines.

Royal Decree 6/2000 establishes a series of limitations on the voting rights of private individuals or legal entities who, directly or indirectly, hold shares or voting rights equivalent to 3% or greater in two or more companies classified as main operators on the same market and sector, from among those listed in the following point.

Revised European telecommunications regulatory framework

EU Directive 2018/1972 of the European Parliament and of the Council was approved on 11 December 2018, establishing the European Electronic Communications Code.

The review process of the sector's regulatory framework began in May 2015 and an interim review was held in May 2017. The publication of this Code lies within the context of the review of the regulatory framework as one of the strategies for achieving the Digital Single Market (DSM).

The Directive specifies a period for adaptation to local legislation, concluding on 21 December 2020. To date, the new law has not been issued, but there is a preliminary draft of the General Telecommunications Law reported by the CNMC on 4 December 2021.

The main issues proposed for revision are: • Promoting regulation of NGA networks, • Improving use of radio frequencies, • Modifying universal service content. • Redefining electronic communication services (internet and personal communications with/without use of numeration) and applying standards to new online agents offering communication services without the use of numeration. • Allocating numeration

In accordance with the Directive, on 17 December 2019, published in the OJEU of 30 December 2019, Executive Regulations of the Commission were approved establishing the contract summary form to be used by the electronic communications service providers available to the public. These Regulations will be applicable from 21 December 2020.

5G action plan

As part of the 5G action plan approved by the European Commission, on 16 December the conditions governing the auction of 700 MHz frequencies were submitted for consultation in Spain. The tender is scheduled for the first quarter of 2021.

Similarly, on 23 December 2020 the conditions for the auction of 20 MHz that had not yet been awarded in the 3.5 GHz band (3,400-3,600 MHz) were published in the BOE (Official State Gazette). The deadline for submitting tender applications is 28 January 2021 and the auction will start by 24 February 2021.

Both frequency bands have been identified as priority bands for 5G in Europe.

Proposed e-privacy Regulation

The European Data Protection Regulation of 14 April 2016 having been implemented and Organic Law 3/2018 of 5 December 2018 on the protection of personal data and guaranteeing of digital rights having been approved, the Regulation on privacy and electronic communications is currently being processed in the European Union which will update current Directive 2002/58. The Regulation will be a directly applicable regulatory instrument. This Regulation seeks to harmonise and secure uniform application in all Member States of the specific regulation on privacy in electronic communications. The proposal envisages that the privacy obligation will be guaranteed for content and metadata derived from electronic communications and applies not only to telecommunications operators but also to new providers of electronic communications services (WhatsApp, Facebook Messenger, Skype, etc.) and OTT suppliers.

Access to TV content

Resolution authorising Telefónica/DTS concentration.

Based on the resolution authorising the concentration of Telefónica/DTS on 22 April 2015. Telefónica maintains its obligation to offer Premium channels in wholesale format. In principle, access to this is guaranteed for the 5- year period up to 2020 as a result of the conditions imposed in the resolution authorising concentration. After this period, the Spanish National Market and Competition Commission (CNMC) must assess if a relevant modification has occurred in the structure or regulation of the markets considered, justifying the maintenance, adaptation or removal of the corresponding conditions for an additional period of up to a maximum of three (3) years.

authorised conditions. Conclusions have been filed and a ruling is currently pending. To date, no ruling has been given on the aforementioned appeals.

Via the Resolution of 22 October 2019, and as part of the concentration control proceedings, the CNMC imposed a fine of Euros 1.5 million on Telefónica de España, S.A.U. for incorrectly allocating its fixed costs for the "Movistar Partidazo" channel, which is part of its wholesale offer of premium channels, for the 2016/2017 season. The outcome of this allocation was that operators interested in contracting the "Partidazo" channel, faced higher costs, whilst for Telefónica these costs were reduced and the company was subject to positive discrimination.

Financing of Corporación de Radio y Televisión Española (CRTVE)

On 28 June 2017, the reform of Law 8/2009 of 28 August governing the financing introduced via the law on General State Budgets entered into force, setting out the obligation upon Euskaltel, Telecable and R to contribute to the financing of CRTVE as a result of their status as electronic communications service operators (0.9% of revenues) and providers of audiovisual services (1.15% of revenues).

In 2016, 2017, 2018, 2019 and 2020 the Euskaltel Group made the relevant payments applicable for those years.

In the area of televised content, copyright regulations establish a series of payment obligations on account of ownership rights to management companies.

At the date of this report, fees chargeable by management companies for public broadcasting rights and content reproduction rights are being renegotiated.

Obligations deriving from information security

The Company’s network sand systems carry and store large volumes of information, confidential data both pertaining to private individuals and companies, as well as personal data. The Company also renders Internet access and online storage services. Since telecommunications companies are dependent on these networks, systems and services, they face increased cybersecurity threats in this field. This can entail hacking of networks and systems or installation of viruses or malware, and thus the Company must adopt certain physical and logical security measures.

In order to transpose the Directive, Royal Decree-Law 12/2018 of 7 September on the security of networks and information systems was approved. This regulation sets out certain obligations for digital service providers, including cloud computing services by the Group's companies.

On 28 January 2021, Decree 43/2021 of 26 January was published in the Official State Gazette (BOE), implementing previous Royal Decree-Law 12/2018 of 7 September on information systems and network security.

13.- Corporate governance a) Board of directors

The following changes to the Board of Directors have taken place in 2020:

Re-election, resignation and appointment of Board members

- The Ordinary General Shareholders' Meeting held on first call on 2 June 2020 agreed the re-election of Kartera 1, S.L. as proprietary director, represented by Ms Alicia Vivanco González for the statutory period of 4 years, and ratified the appointment by co-optation and election of Mr Xabier Iturbe as external director. 20

- With effect from 2 June 2020, and prior to the General Shareholders' Meeting being held, the directors Mr Luis Ramón Arrieta Durana (proprietary director assigned by Kutxabank) and Mr Jonathan Glyn James (independent director) notified the Board of Directors of their resignation from their roles as members of the Board.

- The General Shareholders' Meeting held on 2 June 2020 agreed to set the number of Board of Director members at 11.

- Effective 29 September 2020, the tenures of Ms Elisabetta Castiglioni and Mr José Ángel Corres Abasolo and Mr Miguel Angel Lujua Murga came to an end.

- The Extraordinary General Shareholders' Meeting held on first call on 29 September 2020 agreed the appointments as independent directors of Ms Beatriz Mato Otero and Ms Ana García Fau.

- The Extraordinary General Shareholders' Meeting held on 29 September 2020 agreed to set the number of Board of Director members at 10.

Appointment of new deputy-secretary of the Board of Directors

- Ms Cristina Sustacha Duñabeitia has replaced Mr Gonzalo Silveiro Regúlez as the new deputy-secretary of the Board of Directors and of the Committees reporting to the Board. b) Committees reporting to the Board of Directors

The Board of Director's meeting held on 2 June 2020 agreed to amend the Articles of Association with the following amendments to the Committees: removal of the Strategy Committee and the separation of the Appointments and Remuneration Committee into two, the Appointments Committee and the Remuneration Committee.

In accordance with the resolution adopted by the Board of Directors on 2 June 2020 and following the end of the tenures of Ms Elisabetta Castiglioni and the directors Mr José Ángel Corres Abasolo and Mr Miguel Angel Lujua Murga and the appointment as independent directors of Ms Beatriz Mato Otero and Ms Ana García Fau, the Board of Directors’ Committees are made up as follows:

Audit and Control Committee

Ms Ana García Fau (Chair) Kartera 1, S.L., represented by Ms Alicia Vivanco González Mr Iñaki Alzaga Etxeita

Appointments Committee

Mr Iñaki Alzaga Etxeita (Chair) Ms Belén Amatriaín Corbi Mr Eamonn O´Hare

Remuneration Committee

Ms Belén Amatriain Corbi (Chair) Corporación Financiera Alba, S.A., represented by Mr Javier Fernández Alonso Ms Beatriz Mato Otero c) Other relevant information 21

During 2020, the CNMV was informed of 24 relevant information notifications, the quarterly results, the transactions performed under the liquidity agreement, the call to the Ordinary General Shareholders' Meeting and the Extraordinary General Shareholders' Meeting and the outcomes thereof, the changes made to the Board of Directors and the new composition of the Board's Committees, the payment of an additional dividend charged to 2019 results, the improved wholesale agreements with Orange, the 5G agreement and fibre access agreement with Telefónica and the distribution of an interim dividend in 2020.

14.- Share price evolution

Share price

Closing price at 31-12-2020:

€8.75

Euskaltel shares have decreased in value in 2020 by -2.45%, compared to the IBEX 35 stock market index and the STOXX Europe 600 Telecom sector benchmark index for the same period, -16.69% and -9.08%, respectively.

Trading volume

Period (2 Jan/31 Dec) Number of shares Daily average

Standard trading 26,327,550 102,442 Block trading 4,335,738 16,871

30,663,288 119,313

15.- Outlook and events after the reporting period

Below we describe the most significant events occurred during the first weeks of 2020 up to the date of preparation of these annual accounts.

16.- Acquisition of own shares

At 31 December 2020 we held 173,596 own shares. During the year a total of 1,275,150 shares were acquired, and 1,271,920 were sold or delivered.

The acquisition of own shares is part of the liquidity contract that Euskaltel has signed with Norbolsa, Sociedad de Valores, S.A. (Norbolsa) to manage its own share portfolio.

Under this contract, Norbolsa will trade Euskaltel shares on the Spanish securities markets with a view to achieving the following: a) Favour liquidity in transactions. b) Share price stability.

17.- Definition of alternative performance measures

An explanation of the alternative performance measures used in this Directors’ Report is as follows:

• EBITDA: Results from operating activities + depreciation and amortisation +/- losses on the disposal and derecognition of assets + indemnities and other remuneration + other non-recurring results. Other non- recurring results, when these are included, extraordinary expenses or expenses of an exceptional nature that are not recurrent, as well as integration costs are excluded.

31.12.19 31.12.20 Results from operating activities 71,371 67,438 Depreciation and amortisation (notes 6 y 7) 74,727 80,532 Impairment and gains/(losses) on disposals of fixed assets 5,046 4,885 Compensation and other remuneration (note 13.3) 10,728 2,630 Other profit/(loss) (note 13.5) 3,514 4,734 165,386 160,219

• Investments: Additions of intangible assets and property, plant and equipment, excluding customer equipment that has still not been installed in customer homes or premises

31.12.19 31.12.20 Additions of intangible assets (note 6) 31,210 49,260 Additions of property, plant and equipment (note 7) 50,398 72,949 Additions not yet installed (note 7) - (7,779) 81,608 114,430

Additions not yet installed have not been consider in Investments calculations in order to align them with other business indicators (mainly customer registrations).

• Operating cash flow: EBITDA - Investments

31.12.19 31.12.20 EBITDA 165,386 160,219 Investments (81,608) (114,430) 83,778 45,789

• Conversion rate: Operating cash flow / EBITDA

31.12.19 31.12.20 Operating cash flow 83,778 45,789 EBITDA 165,386 160,219 50.7% 28.6%

18.- Annual Corporate Governance Report

The 2020 Annual Corporate Governance Report, which forms part of the directors’ report, was approved by the Board of Directors of Euskaltel, S.A. on 25 February 2021 and is available on the Company’s website (www.euskaltel.com) and that of the Spanish National Securities Market Commission (www.cnmv.es).

19.- Non-financial information

In compliance with article 49 of the Spanish Code of Commerce, the Euskaltel Group includes the Non-Financial Information Statement for 2020 as part of the Euskaltel Group's Sustainability Report and Non-Financial Information Statement which is available as an Appendix to Euskaltel, S.A.’s consolidated director's report. This report covers the companies Euskaltel, S.A. and R Cable y Telecable Telecomunicaciones, S.A.U., and has been prepared in accordance with the Global Reporting Initiative (GRI) standards and Act 11/2018 on non-financial information and diversity.

(Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails)

Derio, 25 February 2021

In compliance with prevailing legislation, the directors of Euskaltel, S.A. have authorised for issue the annual accounts (comprising the balance sheet, income statement, statement of changes in equity, statement of cash flows and the notes thereto) and the directors' report for the period ended 31 December 2020.

Signed:

Sr. D. Xabier Iturbe Otaegui Sr. D. José Miguel García Fernández (Presidente) (Consejero Delegado)

Kartera 1, S.L. representada por Sr. D. Eamonn O’Hare Sra. Dña. Alicia Vivanco González (Consejero) (Consejera)

Sr. D. Robert W. Samuelson Corporación Financiera Alba, S.A. representada por (Consejero) Sr. D. Javier Fernández Alonso (Consejero)

Sra. Dña. Belén Amatriain Corbi Sr. D. Iñaki Alzaga Etxeita (Consejera) (Consejero)

Sra. Dña. Ana García Fau Sra. Dña. Beatriz Mato Otero (Consejera) (Consejera)

Auditor’s Report on Euskaltel, S.A. and subsidiaries

(Together with the consolidated annual accounts and consolidated directors’ report of Euskaltel, S.A. and subsidiaries for the year ended 31 December 2020)

(Translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.)

KPMG Auditores, S.L. Torre Iberdrola Plaza Euskadi, 5 Planta 17 48009 Bilbao

Independent Auditor’s Report on the Consolidated Annual Accounts

(Translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.)

To the Shareholders of Euskaltel, S.A.:

REPORT ON THE CONSOLIDATED ANNUAL ACCOUNTS

Opinion ______We have audited the consolidated annual accounts of Euskaltel, S.A. (the "Parent") and subsidiaries (together the “Group”), which comprise the consolidated statement of financial position at 31 December 2020, and the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and consolidated notes.

In our opinion, the accompanying consolidated annual accounts give a true and fair view, in all material respects, of the consolidated equity and consolidated financial position of the Group at 31 December 2020 and of its consolidated financial performance and consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS-EU) and other provisions of the financial reporting framework applicable in Spain.

We are independent of the Group in accordance with the ethical requirements, including those regarding independence, that are relevant to our audit of the consolidated annual accounts pursuant to the legislation regulating the audit of accounts in Spain. We have not provided any non-audit services, nor have any situations or circumstances arisen which, under the aforementioned regulations, have affected the required independence such that this has been compromised.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters______Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the consolidated annual accounts of the current period. These matters were addressed in the context of our audit of the consolidated annual accounts as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

(Translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.)

Measurement of intangible assets – Goodwill See notes 3.2 and 5 to the annual accounts

Key audit matter How the matter was addressed in our audit The Group has recognised significant amounts of goodwill from the As part of our audit procedures, we assessed the design and acquisitions of R Cable y Telecomunicaciones Galicia, S.A. and implementation of the key controls related to the goodwill Telecable de Asturias, S.A. (merged with effect 1 January 2019), measurement process, and those established for preparing and which were carried out in 2015 and 2017. Irrespective of the controlling the Group's budgets, evaluating the reasonableness of the existence of indications of impairment, the applicable financial budgets and their historical degree of fulfilment by comparing actual reporting framework requires that the Group identify the Cash data with the initial forecasts. Generating Units (CGUs) to which the goodwill should be assigned and verify the recoverable amount thereof at least annually, in order We also performed tests of detail, including the following: to assess by comparison with the carrying amount if it is necessary to recognise impairment. a) We assessed whether the methodology used by the Group for the analysis of impairment and, in particular, whether the application The Group determines the recoverable amount of each Cash of value in use as the calculation method for the recoverable Generating Unit (CGU) based on its value in use and, therefore, its amount is appropriate in the specific circumstances of the calculation is based on estimated future discounted cash flows, which corresponding CGU; requires the application of value judgements by the Directors with regard to certain key assumptions. b) We verified that the cash flow estimates used to determine value in use are consistent with the business plan approved by the Due to the high level of uncertainty associated with the judgement Directors for the period it covers; applied by the Directors and the significance of the carrying amount of goodwill, this has been considered a key audit matter. c) We assessed the reasonableness of the key assumptions used in the calculation of value in use, including discount rate, long-term growth rate and EBITDA calculated using the budgets approved by Directors. During this procedure, we involved our valuation specialists to assess the adequacy of the discount rate used and the long-term growth rate; and

d) We performed arithmetical verifications of the calculations made to determine the recoverable amount and compared this with the carrying amount of the corresponding CGU in order to determine whether it is necessary to recognise impairment and, if applicable, to verify its proper recognition.

Lastly, we assessed the suitability and sufficiency of the information disclosed in the Group’s consolidated annual accounts with regard to impairment, in accordance with the applicable financial reporting framework and, in particular, we verified that the analysis of the recoverable amount sensitivity to reasonably possible changes in key assumptions was carried out using sufficiently ample changes in assumptions, rather than with minimal changes therein.

Estimation of supplier volume discount – Supplies See note 12.2 to the annual accounts

Key audit matter How the matter was addressed in our audit

The cost of supplies of Group companies is reduced by certain Our audit procedures included the following: volume discounts, the application of which is subject to the degree of fulfilment of a certain accumulated volume of consumption within an a) evaluating the design and implementation of key controls related agreed period, which is usually more than one year. to the supplies and discounts process;

(Translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.)

Estimation of supplier volume discount – Supplies See note 12.2 to the annual accounts

Key audit matter How the matter was addressed in our audit

Under these circumstances, the appropriate recognition of the cost of b) reading and understanding the volume discount contracts with supplies requires the Group to make reliable estimates as to the suppliers; degree to which the conditions giving entitlement to the discount will be met. These estimates require a high level of judgement by the c) assessing the consistency of the volume discounts recorded on Directors. the basis of the agreed-upon terms and conditions in the contract; and Due to the uncertainty associated with these estimates and the relevant effect that these discounts have on the recognition of the d) assessing whether the forecast accumulated consumptions for cost of supplies for the year, this has been considered a key audit the years for which a minimum volume has been established in matter. the contract in order to avail of the discount are reasonable and consistent with the business plan approved by the Directors. In this regard, we reviewed the historical level of achievement of the forecasts, comparing actual volumes of consumption with the initial forecasts.

Revenue recognition See notes 3.13 and 12.1 to the annual accounts

Key audit matter How the matter was addressed in our audit

Revenue recognition is considered a key audit matter given its Our main audit procedures included evaluating the design and significance in relation to the annual accounts as a whole, and implementation, with the help of our information systems specialists, because the recognition of revenue from services rendered is a highly of the controls implemented by the Group companies over the automated process involving a large number of individual recognition of revenue from services rendered. transactions. We also assessed the design and implementation and tested the effectiveness of the general controls over program access and modification and automated component controls over invoicing systems and other support systems classified as critical for the purposes of our audit.

We also performed tests of detail, including the following:

a) Reconciliation of data from the invoicing and collection systems with the accounting records.

b) Review of corrective invoices and subsequent payments.

(Translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.)

Other Information: Consolidated Directors’ Report ______Other information solely comprises the 2020 consolidated directors' report, the preparation of which is the responsibility of the Parent's Directors and which does not form an integral part of the consolidated annual accounts.

Our audit opinion on the consolidated annual accounts does not encompass the consolidated directors' report. Our responsibility regarding the information contained in the consolidated directors’ report is defined in the legislation regulating the audit of accounts, as follows:

a) Determine, solely, whether the consolidated non-financial information statement and certain information included in the Annual Corporate Governance Report, as specified in the Spanish Audit Law, have been provided in the manner stipulated in the applicable legislation, and if not, to report on this matter.

b) Assess and report on the consistency of the rest of the information included in the consolidated directors’ report with the consolidated annual accounts, based on knowledge of the Group obtained during the audit of the aforementioned consolidated annual accounts. Also, assess and report on whether the content and presentation of this part of the consolidated directors’ report are in accordance with applicable legislation. If, based on the work we have performed, we conclude that there are material misstatements, we are required to report them.

Based on the work carried out, as described above, we have observed that the information mentioned in section a) above has been provided in the manner stipulated in the applicable legislation, that the rest of the information contained in the consolidated directors’ report is consistent with that disclosed in the consolidated annual accounts for 2020, and that the content and presentation of the report are in accordance with applicable legislation.

Directors' and Audit Committee's Responsibilities for the Consolidated Annual Accounts______The Parent's Directors are responsible for the preparation of the accompanying consolidated annual accounts in such a way that they give a true and fair view of the consolidated equity, consolidated financial position and consolidated financial performance of the Group in accordance with IFRS-EU and other provisions of the financial reporting framework applicable to the Group in Spain, and for such internal control as they determine is necessary to enable the preparation of consolidated annual accounts that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated annual accounts, the Parent's Directors are responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.

The Parent's audit committee is responsible for overseeing the preparation and presentation of the consolidated annual accounts.

Auditor's Responsibilities for the Audit of the Consolidated Annual Accounts_

(Translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.)

Our objectives are to obtain reasonable assurance about whether the consolidated annual accounts as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion.

• Identify and assess the risks of material misstatement of the consolidated annual accounts, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Parent's directors.

• Conclude on the appropriateness of the Parent's Directors' use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated annual accounts or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the consolidated annual accounts, including the disclosures, and whether the consolidated annual accounts represent the underlying transactions and events in a manner that achieves a true and fair view.

• Obtain sufficient appropriate evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated annual accounts. We are responsible for the management, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.

We communicate with the audit committee of the Parent regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

(Translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.)

We also provide the Parent's audit committee with a statement that we have complied with the applicable ethical requirements, including those regarding independence, and to communicate with them all matters that may reasonably be thought to bear on our independence and, where applicable, related safeguards.

From the matters communicated to the audit committee of the Parent, we determine those that were of most significance in the audit of the consolidated annual accounts of the current period and which are therefore the key audit matters.

We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

Additional Report to the Audit Committee of the Parent______The opinion expressed in this report is consistent with our additional report to the Parent's audit committee dated 25 February 2021.

Contract Period______We were appointed as auditor of the Group by the shareholders at the ordinary general meeting on 2 June 2020 for a period of one year, starting from 1 January 2020.

Previously, we had been appointed for a period of one year, by consensus of the shareholders at their ordinary general meeting, and have been auditing the annual accounts since the year ended 31 December 2015.

KPMG Auditores, S.L. On the Spanish Official Register of Auditors (“ROAC”) with No. S0702

(Signed on original in Spanish)

Cosme Carral López-Tapia On the Spanish Official Register of Auditors (“ROAC”) with No. 18,961

25 February 2021

Consolidated Annual Accounts and Consolidated Directors’ Report for the year ended 31 December 2020

(Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.)

EUSKALTEL, S.A. AND SUBSIDIARIES Consolidated Statements of Financial Position at 31 December 2020 and 2019 (Expressed in thousands of Euros) (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.)

ASSETS Notes 31.12.2020 31.12.2019

NON-CURRENT ASSETS 2,721,038 2,740,013 Goodwill 5 1,024,923 1,024,923 Intangible assets 5 301,140 299,311 Property, plant and equipment 6 1,198,390 1,213,578 Right of use assets 7 62,668 66,210

Financial assets 8 7,430 8,939 11 Deferred tax assets 126,487 127,052

CURRENT ASSETS 233,779 168,246

Inventories 2,783 4,213 Trade and other receivables 8 90,032 58,242 Current tax assets 11 8,863 1,459

Other current assets 4,735 6,085 Cash and cash equivalents 8 127,366 98,247

TOTAL ASSETS 2,954,817 2,908,259

EQUITY AND LIABILITIES Notes 31.12.2020 31.12.2019

EQUITY Capital and reserves 9 1,009,313 982,029

Capital 535,936 535,936

Share premium 355,165 355,165

Retained earnings 141,485 117,410

(Own shares) (1,531) (1,472) Interim dividend paid during the year (25,010) (25,010) Other equity instruments 3,268 -

Other comprehensive income (64) (64)

Equity attributable to equity holders of the Parent 1,009,249 981,965 1,009,249 981,965

NON-CURRENT LIABILITIES 1,543,430 1,524,908 Non-current debt 10 1,420,226 1,368,981 Derivatives 10 202 804 Other financial liabilities 10 68,125 74,863 11 Deferred tax liabilities 54,877 80,260

CURRENT LIABILITIES 402,138 401,386 10 Current debt 149,867 195,290 10 Trade and other payables 193,942 144,043 Current tax liabilities 11 85 2,727

Provisions 1,516 1,524 Other current liabilities 10 56,728 57,802

TOTAL EQUITY AND LIABILITIES 2,954,817 2,908,259

Derio, 25 February 2021

EUSKALTEL, S.A. AND SUBSIDIARIES

Consolidated Income Statements for the years ended 31 December 2020 and 2019 (Expressed in thousands of Euros) (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.)

Notes 2020 2019

Revenues 12.1 677,785 668,303

Work performed by the entity and capitalised 5 & 6 19,176 16,763 Supplies 12.2 (181,718) (163,257) Other operating income 139 404 Personnel expenses 12.3 (42,107) (58,713) Other operating expenses 12.4 (151,183) (149,608) Amortisation and depreciation 5.6 & 7 (196,502) (193,096)

RESULTS FROM OPERATING ACTIVITIES 125,590 120,796

Finance income 1,574 610 Finance cost (60,460) (49,888)

NET FINANCE INCOME/COST 12.5 (58,886) (49,278)

PROFIT BEFORE INCOME TAX 66,704 71,518

Income tax 11 12,662 (9,500)

PROFIT FOR THE YEAR 9 79,366 62,018

Profit for the year attributable to equity holders of the Parent . 79,366 62,018 Profit for the year attributable to non-controlling interests - - 79,366 62,018

Earnings per share (euros) 0.44 0.35

Derio, 25 February 2021

EUSKALTEL, S.A. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income for the years ended 31 December 2020 and 2019 (Expressed in thousands of Euros) (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.)

2020 2019 a) Consolidated profit/(loss) for the year 79,366 62,018

TOTAL COMPREHENSIVE INCOME FOR THE YEAR 79,366 62,018

Attributable to equity holders of the Parent 79,366 62,018 Attributable to non-controlling interests - - 79,366 62,018

Derio, 25 February 2021

EUSKALTEL, S.A. AND SUBSIDIARIES

Consolidated Statements of Changes in Equity for the years ended 31 December 2020 and 2019 (Expressed in thousands of Euros) (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.)

Other Other Registered Share Retained Own comprehensive Interim equity capital premium earnings shares income dividend instrument s Total Balance at 31 December 2018 535,936 355,165 110,461 (1,602) (64) (25,010) - 974,886 Other comprehensive income - - 62,018 - - - - 62,018 Transactions with shareholders Own shares - - 260 130 - - - 390 Dividends paid from 2018 profit - - (55,329) - - 25,010 - (30,319) Dividends - - - - - (25,010) - (25,010) Balance at 31 December 2019 535,936 355,165 117,410 (1,472) (64) (25,010) - 981,965 Other comprehensive income - - 79,366 - - - - 79,366 Transactions with shareholders ------Own shares - - 37 (59) - - - (22) Dividends paid from 2019 profit - - (55,328) - - 25,010 - (30,318) Dividends - - - - - (25,010) - (25,010) Share-based payments (note 9.7) ------3,268 3,268 Balance at 31 December 2020 535,936 355,165 141,485 (1,531) (64) (25,010) 3,268 1,009,249

Derio, 25 February 2021

EUSKALTEL, S.A. AND SUBSIDIARIES

Consolidated Statements of Cash Flows for the years ended 31 December 2020 and 2019 (Expressed in thousands of Euros) (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.)

Note s 2020 2019

Profit for the year before tax 66,704 71,518

Adjustments for 292,553 253,079

5, 6 & Amortisation and depreciation 7 196,502 193,096

Impairment allowances 8 6,103 5,282

Changes in provisions (8) (153)

Allocation of grants - (389)

Impairment and gains/(losses) on disposals of fixed assets 12.4 10,672 9,650

Impairment and gains/(losses) on disposals of financial instruments 12.5 - (9)

Finance income 12.5 (971) (76)

Finance cost 12.5 60,697 49,513

Exchange gains/(losses) 12.5 (238) 376

Change in fair value of financial instruments 12.5 (602) (526) 9.7 & Other income and expense 12.2 20,378 (3,685)

Changes in operating assets and liabilities (12,763) (5,870)

Inventories 481 425

Trade and other receivables (37,873) (12,392)

Other current assets 1,350 7,318

Trade and other payables 33,007 (2,725)

Other current liabilities (9,728) 1,504

Other non-current assets and liabilities - -

Other cash flows from /(used in) operating activities (69,257) (65,426)

Interest paid (47,069) (48,740)

Interest received 1,261 76

Income tax paid (23,449) (16,762)

Cash flows from/(used in) operating activities 277,237 253,301

Derio, 25 February 2021

EUSKALTEL, S.A. AND SUBSIDIARIES

Notes 2020 2019

Payments for investments (186,699) (155,326)

Intangible assets 5 (73,682) (56,871)

Property, plant and equipment 6 (113,017) (97,388)

Financial assets - (1,067)

Proceeds from sale of investments 5,160 2,812

Property, plant and equipment 3,651 2,812

Financial assets 1,509 -

Cash flows from/(used in) investing activities (181,539) (152,514)

Proceeds from and payment for equity instruments (22) 390

Disposal of own equity instruments (22) 390

Proceeds from and payment for financial liability instruments (11,230) (54,957)

Issue of: 131,600 133,156

Bonds and other marketable securities 10 131,600 131,000

Other - 2,156

Repayment of: (142,830) (188,113)

Loans and borrowings - (110,000)

Bonds and other marketable securities (131,000) (70,700)

Lease liabilities (8,177) (7,413)

Other 10 (3,653) -

Dividends and interest paid on other equity instruments (55,327) (55,329)

Dividends (55,327) (55,329)

Cash flows from/(used in) financing activities (66,579) (109,896)

Cash and cash equivalents at beginning of the year 98,247 107,356

Cash and cash equivalents at year end 127,366 98,247

NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 29,119 (9,109)

Derio, 25 February 2021 6

EUSKALTEL, S.A. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 2020 (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.)

NOTE 1.- General information

On 1 July 2015 the Company's shares were admitted to trading on the Barcelona, Bilbao, Madrid and Valencia stock exchanges.

On 27 November 2015 the Company acquired the entire share capital of R Cable y Telecomunicaciones Galicia, S.A.U. (hereinafter R), an entity incorporated in A Coruña on 1 August 1994 whose principal activity is the rendering of services similar to those of the Company, in Galicia. R Cable is the leading telecommunications operator in Galicia, with access to an extensive fibre optic network, and provides mobile telephone services through an agreement with a virtual mobile operator.

On 21 June 2018, the board of directors of Telecable de Asturias, S.A., Telecable Capital Holding, S.A. and Parselaya, S.A. approved the merger of Telecable de Asturias, S.A. by the absorption of Telecable Capital Holding, S.A. and Parselaya, S.A.

On 15 April 2019 the boards of directors of R Cable y Telecomunicaciones Galicia, S.A. and Telecable de Asturias, S.A. approved the merger of these companies with the first being the absorbing company. On 17 June 2019, R Cable y Telecomunicaciones Galicia, S.A.U. changed its corporate name to R Cable y Telecable Telecomunicaciones, S.A.U. In addition to the merger, these companies have unified their processes, with R Cable y Telecomunicaciones Galicia, S.A.U. as a company being considered a single CGU.

Following on from its strategy to expand into neighbouring regions (Navarre, La Rioja, León, Cantabria and Cataluña), in May 2020 the Euskaltel Group launched its national expansion plan via the Virgin telco brand.

The companies that, along with Euskaltel, S.A., comprise the Euskaltel Group, and the percentage of ownership of the Parent in each (direct and/or indirect) at 31 December 2020 are as follows: R Cable y Telecable Telecomunicaciones, S.A.U. (100%) and EKT Cable y Telecomunicaciones, S.L.U. (100%).

NOTE 2.- Basis of presentation

2.1. True and fair view

The accompanying consolidated annual accounts have been prepared on the basis of the accounting records of Euskaltel, S.A. and of the consolidated entities. The consolidated annual accounts for 2020 have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS-EU), and other applicable provisions in the financial reporting framework, to give a true and fair view of the consolidated equity and consolidated financial position of Euskaltel, S.A. and subsidiaries (the Group) at 31 December 2020, and the consolidated results of operations and changes in consolidated equity and cash flows of the Group for the year then ended.

The Company applied International Financial Reporting Standards as adopted by the European Union (IFRS-EU) for the first time when preparing its financial statements for 2012 in the context of the stock flotation mentioned in the previous note.

The directors of the Parent consider that the consolidated annual accounts for 2020, authorised for issue on 25 February 2021, will be approved with no changes by the shareholders at their annual general meeting.

2.2. Comparative information

The consolidated statement of financial position, consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity, consolidated statement of cash flows and the notes thereto for 2020 include comparative figures for the prior year.

Changes in accounting criteria

Up until the year ended 31 December 2019, grants relating to assets (or capital) were presented under deferred income in non-current liabilities in the statement of financial position. In order to provide more reliable information regarding net investments in assets, in the year ended 31 December 2020, the Group changed the presentation method, deducting grants from the related assets calculation.

So as to retroactively apply this change, some amounts have been reclassified in these consolidated financial statements to conform to the current year's presentation and to facilitate their comparison. The reclassification was as follows:

Consolidated Statement of Financial Position at 31 December 2019

Thousands of Euros 2019 2019 Adjustments Restated

Property, plant and equipment 1,222,599 (9,021) 1,213,578 Non-current assets 2,749,034 (9,021) 2,740,013

Total assets 2,917,280 (9,021) 2,908,259

Deferred income 9,021 (9,021) - Non-current liabilities 1,533,929 (9,021) 1,524,908

Total liabilities 2,917,280 (9,021) 2,908,259

2.3. Adoption of International Financial Reporting Standards (IFRS)

First-time application of accounting standards

At the date of preparing these consolidated annual accounts, the standards, amendments and interpretations issued, applied for the first time in these consolidated annual accounts for the year ended 31 December 2020, are as follows: - - IAS 1 and IAS 8 - Definition of materiality - IFRS 3 (Amendment) Definition of a business - Amendments to the references of the IFRS standards for the conceptual framework. - IBOR reform, Stage 1 - Amendments to IFRS 16 regarding rent concessions arising from Covid-19.

These standards have not led to changes in the accounting policy applied to the Group’s consolidated annual accounts.

Standards, amendments and interpretations of the existing standards that have not been adopted by the European Union

At the date of preparation of these consolidated annual accounts, the IASB and the IFRS Interpretations Committee had published the standards, amendments and interpretations detailed below, which are pending adoption by the European Union:

- IFRS 10 (Amendment) and IAS 28 (Amendment) Sale or contribution of assets between an investor and its associate or joint venture

- IAS 1 (Amendment) Classification of liabilities as current and non-current

- IFRS 17 Insurance contracts: Replaces IFRS 4. It sets out the principles for the recognition, measurement, presentation and disclosure of insurance contracts so that an entity provides relevant and reliable information to enable users of financial information to assess the effect of the contracts on the financial statements.

- IBOR reform, Stage 2.

- IAS 37 (Amendment) Provisions, contingent liabilities and contingent assets: Provisions for onerous contracts.

Given the Group’s activities, Management does not expect the effect of first-time application of the new standards, amendments or interpretations on the consolidated annual accounts to be significant for the Group.

2.4. Critical issues regarding the valuation and estimation of uncertainties

Preparation of the consolidated annual accounts in accordance with IFRS-EU requires certain estimates and judgements concerning the future. These are evaluated continuously and are based on historical experience and other factors, including expectations of future events and, where applicable, the justified opinion of renowned experts.

The estimates and judgements that present significant risk of a material adjustment to the carrying amounts of assets and liabilities in the subsequent reporting period are as follows: 9

a) Capitalisation of tax credits

Deferred tax assets are recognised for all deductible temporary differences and unused deductions to the extent that it is probable that the companies comprising the Group will obtain sufficient taxable income against which these assets can be utilised. In order to determine the amount of the deferred tax assets to be recognised, estimates are made of the amounts and dates on which future taxable profits will be obtained and the reversal period of temporary differences. b) Impairment of goodwill

The acquisitions of R Cable and Telecable resulted in goodwill whose recoverable amount must be reviewed annually. The recoverable value is determined through discounted future cash flow estimates, which require the application of judgments by Directors when establishing certain key assumptions. c) Volume discounts from suppliers

The Group’s expenditure for supplies is reduced due to certain volume discounts, the application of which is subject to purchasing a certain amount over the stipulated period, normally more than one year. The adequate recognition of such discounts under these circumstances requires that the Group be able to reliably estimate the degree of compliance with the conditions entitling it to the discount.

All previous estimates have been updated taking into account the variables included in the Group's Business Plan. The Plan's key assumptions are based on growth through national expansion under the new brand (see note 18). d) Estimates made in relation to share-based payments

In order to calculate the amount to be recognised as equity instruments for the share-based payment plans offered to certain employees, the Group estimates the fair values of the liabilities when assigned and, at each reporting close, the degree of fulfilment (%) of the targets set and number of people entitled to receive the payments (note 9.7). e) Useful life of cable network assets

As explained in note 6, the Euskaltel Group will be deploying a fibre optic FTTH network, which requires re- estimating the useful life of part of the current network assets that will have to be derecognised when the new network is brought into operation. The technical team responsible for this deployment estimates the time it will take to deploy this new fibre network. f) Provisions

The calculation of provisions is subject to high levels of judgement and uncertainty.

2.5. Presentation currency

The consolidated annual accounts are expressed in thousands of Euros rounded off to the nearest thousand.

NOTE 3.- Accounting principles

3.1. Subsidiaries

Subsidiaries are entities over which the Company, either directly or indirectly, exercises control. The Company controls an entity when it is exposed, or has rights, to variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary.

The income, expenses and cash flows of subsidiaries are included in the consolidated annual accounts from the date of acquisition, which is the date on which the Group obtains effective control of the subsidiaries. Subsidiaries are no longer consolidated once control is lost.

Intragroup balances and transactions and any unrealised gains or losses are eliminated on consolidation.

The subsidiaries’ accounting policies have been adapted to Group accounting policies for like transactions and events in similar circumstances.

3.2. Intangible assets

The excess of the consideration given in a business combination and the net identifiable assets acquired and liabilities assumed is recognised as goodwill.

Goodwill is not amortised but is tested for impairment annually or more frequently where events or circumstances indicate that an asset may be impaired. Goodwill on business combinations is allocated to the cash-generating units (CGUs) or groups of CGUs which are expected to benefit from the synergies of the business combination. After initial recognition, goodwill is measured at cost less any accumulated impairment. b) Computer software

Computer software maintenance costs are charged as expenses when incurred. c) Licences

d) Brands

The brands were recognised in the acquisitions of R Cable and Telecable at their fair value at those dates. They are not amortised as they are considered assets with indefinite useful lives and the Group therefore performs impairment tests individually or jointly with goodwill at least once a year and provided there are indications of impairment.

If the cost of an intangible asset includes a contingent component, the best estimate of the present value of the contingent payment is recorded, except when these payments are conditional upon a future event that increases the economic benefits or returns the asset will generate, such as variables relating to sales or profit/(loss) for the year, in which case the considerations will be expensed as they arise.

e) Other intangible assets

Other intangible assets include the incremental and specific costs related to the amounts paid for each contract entered into, and are amortised in a systematic manner that is consistent with the transfer to the customer of the goods or services to which the asset relates, provided that the customer does not discontinue the contract, in which case the amount pending amortisation is taken to profit and loss. The estimated amortisation period is between 5 and 6 years.

The Group updates amortisation to reflect any significant changes in the expected transfer schedule of the goods and services relating to the asset to the client. Such changes are recognised as a change in the accounting estimate.

This caption also includes the amount at which customer relations arising from the acquisitions of R Cable and Telecable have been recognised. These assets are measured at fair value and are amortised on a straight-line basis over their estimated useful lives of between 6 and 13 years. f) Impairment

The Group evaluates and determines impairment losses and reversals of impairment losses on intangible assets based on the criteria described in note 3.5.

3.3. Property, plant and equipment

Property, plant and equipment are recognised at cost of acquisition or production, less accumulated depreciation and any recognised accumulated impairment losses.

The value of work performed by the entity and capitalised is calculated taking into account direct and indirect costs attributable to those assets.

Recurring maintenance costs are recognised in the consolidated income statement when incurred.

Property, plant and equipment are depreciated on a straight-line basis over their estimated useful lives, based on the actual decline in value due to operation and use.

The estimated average useful lives of property, plant and equipment are as follows:

Buildings 50 Civil engineering 50 Cablings 18-40 Network equipment 10-18 Customer equipment 2-15 Other installations, equipment and furniture 6-7 Other property, plant and equipment 5-8

The majority of property, plant and equipment reflects investments to deploy the Group's telecommunications network throughout the Basque Country, Galicia and Asturias.

The Group reviews residual values, useful lives and depreciation methods at each year-end. Changes to initially established policies are accounted for as a change in accounting estimates. Over the year the Company re- estimated the residual life of certain elements of the HFC network that it will begin to replace sooner than initially planned (see note 6), reducing this residual life to 24 months at 31 December 2020.

impairment losses if the circumstances in which they were recognised no longer exist, are recognised as an expense or income, respectively, in the consolidated income statement.

Finance costs that are directly attributable to the acquisition or construction of assets which will not be available for use for a considerable length of time are included in the cost of the asset when the expenses related to the asset have been incurred, interest has been accrued and the steps necessary to prepare the assets for their intended use are being taken. Capitalisation of borrowing costs is suspended when construction of the assets is interrupted, except when the interruption is considered necessary to make the asset operational.

3.4. Leases - Right of use assets

At the start of a contract the Group evaluates whether it contains a lease. A contract is or contains a lease if it grants the right to control the use of an identified asset over a period of time in exchange for a consideration. The period of time during which the Group uses the asset includes consecutive and non-consecutive periods of time. The Group only reassesses the terms if the contract is amended.

The Group has chosen not to apply the accounting policies detailed below to short-term leases and to leases in which the underlying asset has a value of below Euros 5 thousand. For this type of contract the Group recognises payments on a straight-line basis over the lease term.

At the start of the lease, the Group recognises a right of use asset and a lease liability. The right of use asset comprises the lease liability amount, any lease payment made on or prior to the start date, less the incentives received, the initial direct costs incurred and an estimate of the dismantling or restoration costs, as detailed in the accounting policy regarding provisions.

The Group recognises the lease liability at the present value of the lease payments outstanding on the start date. The Group discounts the lease payments at the appropriate incremental interest rate, unless the lessor's implicit interest rate can be calculated reliably. The incremental interest rate was thus used in the initial measurement of the lease liability, which represents the interest rate that a lessee would have to pay for borrowing for a similar term, and with a similar guarantee, the funds needed to obtain an asset of similar value to the right-of- use asset in a similar economic environment. The Group uses different discount rates depending on the remaining lease terms. The discount rates applied are between 1.35% and 6.17%.

Outstanding lease payments consist of fixed payments less any incentive receivable, variable payments dependent on an index or rate initially measured at the index or rate applicable at the start date, amounts expected to be paid for residual value guarantees, the exercise price of the purchase option where the Group is reasonably certain of exercising this option and lease termination penalty payments, provided that the lease term reflects the exercise of the termination option.

The Group measures the right of use assets at cost, less depreciation and any accumulated impairment losses, adjusted for any re-estimation of the lease liability.

If the contract transfers ownership of the asset to the Group at the end of the lease term or the right of use asset includes the purchase option price, the depreciation criteria detailed in the section on property, plant and equipment are applied from the lease start date until the end of the asset's useful life. If this is not the case, the Group depreciates the right of use asset from the start date to the earlier of the useful life of the right and the end of the lease term.

The Group applies non-current asset impairment criteria to the right of use asset.

The Group measures the lease liability, increasing it by the finance cost accrued, decreasing it by the payments made and re-estimating the carrying amount as a result of amendments to the lease or to reflect updates to the in-substance fixed payments.

The Group records the variable payments that have not been included in the initial measurement of the liability in the income statement in the period in which the events triggering their payment occur.

The Group records the re-estimates of the liability as an adjustment to the right of use asset, until the asset is reduced to zero and then subsequently in recognised in profit and loss.

The Group re-estimates the lease liability discounting lease payments at an updated rate if there is a change in the lease term or a change in the expectation that the purchase option on the underlying asset will be exercised.

The Group re-estimates the lease liability if there is a change in the expected residual value guarantee payable or a change in the index or rate used to calculate the payments, including a change to reflect modifications to market rents once they have been reviewed.

The Group recognises a change to the lease as a separate lease if it broadens the scope thereof by adding one or more rights of use and the amount of the lease consideration increases due to the broader scope by an amount consistent with the individual price and any adjustment, in order to reflect the specific circumstances of the contract.

If the change does not give rise to a separate lease, on the date of the change, the Group allocates the consideration to the modified contract based on the above indications, reassesses the lease term and remeasures the value of the liability, discounting the revised payments at the revised interest rate. The Group reduces the carrying value of the right-of-use asset to reflect the partial or total completion of the lease in the case of modifications that reduce the scope of the lease and recognises the gain or loss in the income statement. For any other modifications, the Group adjusts the carrying value of the right-of-use asset.

3.5. Impairment losses on non-financial assets

The Group evaluates whether there are indications of possible impairment losses on non-financial assets subject to amortisation or depreciation to verify whether the carrying amount of these assets exceeds the recoverable amount. The recoverable amount is the higher of the fair value less costs to sell and the value in use. Nonetheless, the Group tests assets with indefinite useful lives for impairment at least annually, irrespective of whether there is any indication of impairment.

Impairment losses for CGU's are allocated first to reduce the carrying amount of goodwill allocated to the unit and then to the other assets of the unit pro rata with their carrying amounts. The carrying amount of each asset may not be reduced below the highest of its fair value less costs of disposal, its value in use and zero.

At the end of each reporting period the Group assesses whether there is any indication that an impairment loss recognised in prior periods may no longer exist or may have decreased. Impairment losses are only reversed if there has been a change in the estimates used to calculate the recoverable amount of the asset. Impairment of goodwill is not reversible.

Impairment losses are recognised in the consolidated income statement.

A reversal of impairment is recognised in the consolidated income statement. The increased carrying amount of an asset attributable to a reversal of an impairment loss may not exceed the carrying amount that would have been determined, net of depreciation or amortisation, had no impairment loss been recognised.

A reversal of an impairment loss for a CGU is allocated to the non-current assets of each unit, except goodwill, pro rata with the carrying amounts of those assets. The carrying amount of an asset may not be increased above the lower of its recoverable amount and the carrying amount that would have been disclosed, net of amortisation or depreciation, had no impairment loss been recognised.

After an impairment loss or reversal of an impairment loss is recognised, the depreciation (amortisation) charge for the asset is adjusted in future periods based on its new carrying amount. 14

However, if the specific circumstances of the assets indicate an irreversible loss, this is recognised directly in losses on the disposal of fixed assets in the consolidated income statement.

3.6. Inventories

Cost is determined using the weighted average cost method. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs necessary to make the sale.

3.7. Financial instruments a) Recognition and classification of financial instruments

For measurement purposes, the Group classifies financial instruments into financial assets and financial liabilities at fair value through profit or loss, separating those initially designated from those held for trading, or measured necessarily at fair value through profit and loss, financial assets and liabilities measured at amortised cost and financial assets at fair value through other comprehensive income, separating equity instruments initially designated from other financial assets. Financial assets other than those at fair value through profit and loss and equity instruments at fair value through other comprehensive income are classified based on the business model and the nature of the contractual cash flows. Financial liabilities are measured at amortised cost, except those designated at fair value through profit and loss and those held for trading.

A financial asset or liability is classified as held for trading if:

• It is acquired or incurred principally for the purpose of selling or repurchasing it in the near term; • On initial recognition it is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking; • It is a derivative, except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument, or • It is an obligation to deliver financial assets obtained on loans no longer held.

The Group classifies a financial asset at amortised cost if held within the framework of a business model whose purpose is to hold financial assets in order to obtain contractual cash flows and the contractual conditions of the financial asset give rise, on the specified dates, to cash flows constituting solely payments of principal plus interest on the outstanding principal (SPPI).

The Group classifies a financial asset at fair value through other comprehensive income if held within the framework of a business model whose purpose is to obtain contractual cash flows and sell financial assets and the contractual conditions of the financial asset give rise, on the specified dates, to cash flows constituting SPPI.

The business model is determined by the Group’s key personnel at a level that reflects the way in which the groups of financial assets are jointly managed to serve the specific business purpose. The Group’s business model represents the manner in which it manages its financial assets to generate cash flows.

Financial assets and liabilities for contingent consideration arising in a business combination are classified as financial assets and liabilities measured at fair value through profit or loss. b) Financial assets and liabilities at amortised cost

Financial assets and liabilities at amortised cost are initially recognised at fair value, plus or less transaction costs, and subsequently measured at amortised cost using the effective interest method.

c) Impairment

The Group recognises impairments on expected credit losses of financial assets measured at amortised cost and assets under contract.

At the end of each reporting period, the Group measures an impairment equivalent to the credit losses expected in the next twelve months for financial assets whose credit risk has not increased significantly since the initial date of recognition, or when the credit risk of a financial asset is deemed to have already increased significantly.

Notwithstanding the above, the Group recognises the expected credit loss over the life of the instrument for trade debtors or assets under contract. d) Derecognition and modifications of financial liabilities

The Group derecognises all or part of a financial liability when it either discharges the liability by paying the creditor, or is legally released from primary responsibility for the liability either by process of law or by the creditor.

Debt instrument exchanges between the Group and the counterparty or substantial modifications in liabilities initially recorded, are recognised as a settlement of the original financial liability and the new financial liability is accounted for, as long as the instruments have substantially different conditions.

The Group deems that the conditions are substantially different if the present value of the cash flows discounted under the new conditions -including any commission paid, less any commission received, and using the original effective interest rate- differs by at least 10% from the present value of the discounted cash flows still remaining from the original financial liability.

If the exchange is recognised as a settlement of the original financial liability, costs or commissions are recognised as profit or loss in the income statement. Otherwise, modified cash flows are discounted at the original effective interest rate, recognising any difference with the previous carrying value in profit and loss. Similarly, costs or commissions adjust the carrying value of the financial liability and are amortised over the remaining life of the modified liability using the amortised cost method.

3.8. Cash and cash equivalents

Cash and cash equivalents include cash on hand and demand deposits in financial institutions and other short- term, highly liquid investments with original maturity of less than three months.

The Group classifies cash flows corresponding to interest earned and interest paid as an operating activity, and dividends paid out as a financing activity.

3.9. Parent own shares

The acquisition of equity instruments of the Parent by the Group is recognised separately at cost of acquisition as a reduction in equity, regardless of the reason for the purchase. No gain or loss is recognised on transactions involving own equity instruments.

The subsequent redemption of the Parent shares entails a capital reduction equivalent to the par value of the shares. Any positive or negative difference between the purchase price and the par value of the shares is debited or credited to reserves.

Transaction costs related to own equity instruments are accounted for as a reduction in equity, net of any tax effect.

3.10. Hedge accounting

Derivative financial instruments are initially recognised using the criteria set out above for financial assets and liabilities. Derivative financial instruments which do not qualify for hedge accounting are classified and measured as financial assets or liabilities at fair value through profit or loss. Derivative financial instruments which qualify for hedge accounting are initially measured at fair value, plus any transaction costs that are directly attributable to the acquisition.

The Group recognises the portion of the gain or loss on the measurement at fair value of a hedging instrument that is determined to be an effective hedge in other comprehensive income. The ineffective portion and the specific component of the gain or loss or cash flows on the hedging instrument, excluding the measurement of the hedge effectiveness, are recognised with a charge or credit to the finance cost or income accounts.

3.11. Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event; it is probable that an outflow of resources will be required to settle the obligation; and a reliable estimate can be made of the amount of the obligation.

3.12. Employee benefits a) Termination benefits

Dismissal payments are recorded in the year in which the Company decides to make them and a valid expectation is created vis-à-vis third parties regarding the dismissal. b) Short-term employee benefits

Short-term employee benefits comprise employee remuneration, other than termination benefits, that are expected to be settled in full before 12 months after the end of the reporting period in which the employees render the related services.

The Group recognises the expected cost of short-term employee benefits in the form of accumulating compensated absences when the employees render service that increases their entitlement to future compensated absences. In the case of non-accumulating compensated absences, the expense is recognised when the absences occur.

3.13. Revenue from contracts with customers

Revenue from contracts with customers is recognised in the amount expected to be received from the customer when control over the goods or services is transferred to the customer. The transfer of control may take place at a moment in time or over time. When the same contract includes more than one compliance obligation for the customer, revenue is recognised based on the sale price regardless of the various compliance obligations.

The Group has determined its main compliance obligation as the rendering of telecommunications services consisting of mobile and landline telephony, television and Internet services to its customers. The telecommunications service consists of a number of different services that are substantially the same and have the same pattern of transfer to the customer. Revenue is recognised over the length of time those services are rendered. Euskaltel also offers equipment that constitutes a separate compliance obligation and recognises the revenue upon delivery, which is the time at which control over the equipment is transferred to the customer.

The Group determines the independent sale price based on the observable sale price of a good or service when sold separately in similar circumstances to similar clients. In those cases in which the sum of the independent sale prices of the goods or services contracted exceeds the agreed consideration, unless the Group has observable evidence that the whole discount corresponds to one or more of the contract execution obligations, but not all of them, the discount is allocated proportionally over the contract’s execution obligations.

A contract's financial component is not considered significant when the period between the time the goods or the services promised to the customer are transferred and the time at which the customer pays for those goods or services is one year or less.

3.14. Income tax

The tax expense for the year includes current and deferred tax. If the profit is associated with an income or expense recognised directly in equity, the tax expense or tax income is also recognised against equity.

Deferred taxes are recognised in respect of temporary differences between the tax base of an asset or liability and its carrying amount in the consolidated financial statements. Deferred tax assets and unused tax credits in respect of loss carryforwards are only capitalised when:

• their future realisation is considered probable;

• the temporary differences are related to investments in subsidiaries, associates and joint ventures providing the temporary differences will reverse in the foreseeable future and sufficient taxable income is expected to be generated against which the differences can be offset;

The Group recognises deferred tax liabilities in all cases except when:

• they arise from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither accounting profit nor taxable income;

• they are related to investments in subsidiaries, associates and interests in joint ventures over which the Group is able to control the timing of the reversal of the temporary difference and it is not probable that the temporary difference will reverse in the foreseeable future.

Tax credits in respect of all items, including loss carryforwards, are recognised at the tax rate that is expected to apply to the years when the asset is realised, based on tax rates and tax laws that have been enacted at the reporting date.

The Group reviews the carrying amount of deferred tax assets at the reporting date and reduces this amount to the extent that it is not probable that sufficient taxable profit will be available against which to recover them. Additionally, at year end, the Group reassesses whether the conditions for recognising previously unrecognised deferred tax assets have been met.

The Group only offsets deferred tax assets and liabilities if it has a legally enforceable right, when they relate to income taxes levied by the same taxation authority and on the same taxable entity and when the taxation authority permits the Group to make or receive a single net payment, or to recover the assets and settle the liabilities simultaneously in each future year in which significant amounts of deferred tax assets or liabilities are expected to be settled or recovered.

Tax uncertainties

If the Group determines that it is probable that the tax authorities will not accept an uncertain tax treatment or a group of uncertain tax treatments, it considers this uncertainty when calculating taxable income, tax bases, tax loss carryforwards, deductions and tax rates. The Group determines the effect of the uncertainty on the income tax return using the expected amount approach, when the range of possible outcomes is very wide or the most likely outcome approach, when the outcome is binary or is concentrated on one value. If the tax asset or

liability calculated using these criteria exceeds the amount filed in the self-assessments, it is presented as current or non-current in the consolidated statement of financial position based on the expected date of recovery or settlement, taking into account, where appropriate, late interest payment on the liability as it accrues in the income statement. The Group records changes in events and circumstances regarding tax uncertainties as a change in estimate.

3.15. Environmental issues

3.16. Share-based payment transactions

The Group recognises the goods or services received or acquired in a share-based payment transaction when it obtains the goods or as the services are received. It recognises an increase in equity if the goods or services were received in an equity-settled share-based payment transaction, or a liability with a balancing entry in the income statement or assets if the goods or services were acquired in a cash-settled share-based payment transaction.

The Group recognises equity-settled share-based payment transactions, including capital increases through non- monetary contributions, and the corresponding increase in equity at the fair value of the goods or services received, unless that fair value cannot be reliably estimated, in which case the value is determined by reference to the fair value of the equity instruments granted.

Equity instruments granted as consideration for services rendered by Group employees or third parties that supply similar services are measured by reference to the fair value of the equity instruments offered.

Equity-settled payments to employees are recognised as follows:

The Group determines the fair value of the instruments granted to employees at the grant date.

If the Group has the choice of cancelling in cash or by issuing equity instruments, the Group only has a present obligation to settle in cash if the decision to settle in equity instruments is of a non-trading nature or there is a past practice or established policy of settling in cash or, generally speaking, they are settled in cash when the employee requests it.

NOTE 4.- Financial risk management

The Group’s activities are exposed to credit risk, liquidity risk, and market risk, the latter of which includes currency and interest rate risk.

The Group uses financial risk evaluation and mitigation methods suited to its activity and scope of operations, which are sufficient to adequately manage risks.

A summary of the main risks affecting the Group, and the measures in place to mitigate their potential affect, is as follows: a) Credit risk

Credit risk is the risk of financial loss to which the Group is exposed in the event that a customer or counterparty to a financial instrument fails to discharge a contractual obligation. This risk is concentrated in receivables.

The Group considers customer credit risk to be mitigated by the application of different policies, and the high level of dispersion of receivables. Among the different policies and specific practices are the customer acceptance policy, continual monitoring of customer credit, which reduces the possibility of default on the main receivables, and collection management.

Cash and cash equivalents reflect the amounts available with financial institutions that have high credit ratings. b) Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or other financial assets. The Group’s approach to managing liquidity risk is to ensure, as far as possible, that it has enough liquidity to settle its debts as they fall due, in both normal and stressed conditions, without incurring unacceptable losses or compromising its reputation.

The Group adjusts the maturities of its debts to its capacity to generate cash flows to settle them.

To do this, the Group has implemented a five-year financing plan with annual reviews and regular analyses of its financial position, which includes long-term projections, together with daily monitoring of bank balances and transactions.

Although the Group's working capital, defined as the difference between current assets and current liabilities (maturing in less than 12 months in both cases), is negative, this is mainly because of the way the business operates, resulting in the average collection period being shorter than the average payment period, which is common practice in the sector in which the Group operates.

c) Market risk, currency risk and interest rate risk

Market risk is the risk that changes in prices could affect the Group’s revenue or the value of its financial instruments. The objective of managing market risk is to control exposure to this risk, within reasonable parameters, and optimise returns.

The Group's scope of operations barely exposes it to currency or price risks, which may arise from occasional purchases in foreign currency of insignificant amounts.

Interest rate risks arises on variable-rate loans from financial institutions and related parties, which expose the Group to fluctuations in future cash flows. To mitigate the risk of the effect of a potential rise in interest rates, during 2017 the Company finalised agreements with certain financial institutions to hedge against increases in the Euribor, over a nominal amount of Euros 825 million, equivalent to 50% of the nominal amount drawn down

on loans with financial institutions. The financial instrument amount at 31 December 2020 and the impact on profit/(loss) are not material.

The Group settles interest on a regular basis, which allows it to closely monitor the performance of interest rates in the financial market.

NOTE 5.- Intangible assets

Details of intangible assets and movement are as follows:

31.12.19 Additions Disposals Transfers 31.12.20 Cost Industrial property 4,023 27 - 2,334 6,384 Computer software 163,146 27,003 - (11) 190,138 Licences 7,668 - - - 7,668 Brands 53,874 - - - 53,874 Other intangible assets 302,336 46,652 (16,175) (2,323) 330,490 531,047 73,682 (16,175) - 588,554

Accumulated amortisation Industrial property (4,023) (27) - - (4,050) Computer software (114,207) (17,168) - - (131,375) Licences (2,312) (388) - - (2,700) Other intangible assets (111,194) (43,632) 5,537 - (149,289) (231,736) (61,215) 5,537 - (287,414) Carrying amount 299,311 12,467 (10,638) - 301,140

31.12.18 Additions Disposals 31.12.19 Cost Industrial property 4,038 (15) - 4,023 Computer software 143,494 19,652 - 163,146 Licences 7,668 - - 7,668 Brands 53,874 - - 53,874 Other intangible assets 280,277 37,234 (15,175) 302,336 489,351 56,871 (15,175) 531,047

Accumulated amortisation Industrial property (4,038) 15 - (4,023) Computer software (96,442) (17,765) - (114,207) Licences (1,924) (388) - (2,312) Other intangible assets (76,158) (40,236) 5,200 (111,194) (178,562) (58,374) 5,200 (231,736) Carrying amount 310,789 (1,503) (9,975) 299,311

The cost of fully amortised intangible assets in use at 31 December 2020 totals Euros 115,588 thousand (Euros 102,491 thousand at 31 December 2019).

The Group has contracted sufficient insurance policies to cover the risks to which its intangible assets are exposed.

At 31 December 2020 Group personnel expenses totalling Euros 8,353 thousand (Euros 4,572 thousand at 31 December 2019) have been capitalised as intangible asset.

Impairment and and allocation of goodwill and intangible assets with indefinite useful lives to CGUs

Goodwill has been assigned jointly to the existing CGUs (Euskaltel and RCable), due to the synergies they generate throughout the whole Group. The recoverable amount of the CGUs has been calculated at its value in use according to cash flow projections determined on the basis of the 2020-2025 Business Plan, updated for 2021 based on the approved 2021 budget, which covers a five-year period. Cash flows beyond this period are extrapolated using the growth rates estimated, which do not exceed average long-term growth rates for the sector.

The key hypothesis used by Management for the cash flow projections are as follows:

• Discount rate after tax: 6.15% (7.72% before tax).

• Increase in sales over the budgeted period as a result of the Group's national expansion.

• Growth rate after the five-year period: 1.24%.

• EBITDA Margin/Non-current revenue in line with the aforementioned business plan.

• CAPEX/Revenue ratio also in line with the aforementioned business plan.

Group Management has prepared a sensitivity analysis for the recoverable value of goodwill covering changes of ±5 % in key assumptions, with no impairment whatsoever.

NOTE 6.- Property, plant and equipment

Details of property, plant and equipment and movement in 2020 are as follows:

31.12.19 Additions Disposals Transfers 31.12.20 Cost Land and buildings 161,711 - - 403 162,114 Civil engineering 560,415 960 - 10,798 572,173 Cabling 419,763 481 (2,198) 33,181 451,227 Network equipment 628,761 - (3,414) 21,346 646,693 Customer equipment 390,112 - (59) 26,930 416,983 Other installations, 228,954 656 - 11,130 240,740 equipment and furniture Under construction 10,464 110,920 - (102,106) 19,278 Other property, plant and 68,922 - - 204 69,126 equipment 2,469,102 113,017 (5,671) 1,886 2,578,334

Accumulated depreciation Land and buildings (45,484) (4,704) - - (50,188) Civil engineering (109,828) (13,577) - - (123,405) Cabling (250,704) (59,105) 242 - (309,567) Network equipment (401,033) (17,032) 1,709 - (416,356) Customer equipment (280,443) (18,668) 35 - (299,076) Other installations, (146,359) (12,511) - (158,870) equipment and furniture - Under construction (21,673) (809) - - (22,482) (1,255,524) (126,406) 1,986 - (1,379,944)

Carrying amount 1,213,578 (13,389) (3,685) 1,886 1,198,390

Details of property, plant and equipment and movement in 2019 are as follows:

31.12.18 Additions Disposals Transfers 31.12.19 Cost Land and buildings 161,397 - - 314 161,711 Civil engineering 543,659 3,408 - 13,348 560,415 Cabling 396,240 165 (12,618) 35,976 419,763 Network equipment 618,372 - (2,473) 12,862 628,761 Customer equipment 368,065 - - 22,047 390,112 Other installations, equipment 702 (30) 10,031 228,954 and furniture 218,251 Under construction 17,366 86,751 - (93,653) 10,464 Other property, plant and - - 87 68,922 equipment 68,835 2,392,185 91,026 (15,121) 1,012 2,469,102

Accumulated depreciation Land and buildings (40,788) (4,696) - - (45,484) Civil engineering (96,352) (13,476) - - (109,828) Cabling (201,338) (60,690) 11,324 - (250,704) Network equipment (385,317) (16,906) 1,190 - (401,033) Customer equipment (263,944) (16,499) - - (280,443) Other installations, equipment (12,767) 30 (146,359) and furniture (133,622) - Under construction (20,707) (966) - - (21,673) (1,142,068) (126,000) 12,544 - (1,255,524)

Carrying amount 1,250,117 (34,974) (2,577) 1,012 1,213,578

During the year ended 31 December 2020 internal expenses amounting to Euros 10,823 thousand (Euros 12,191 thousand in 2019) have been capitalised.

The cost of fully depreciated property, plant and equipment in use at 31 December 2020 is Euros 679,408 thousand (Euros 573,852 thousand at 31 December 2019).

At 31 December 2020 and 31 December 2019, sufficient insurance policies have been taken out to cover the risks to which property, plant and equipment are exposed.

In November 2020, the Parent company’s directors agreed the roll-out of the FTTH fibre optic network. As a result, the Group re-estimated the residual useful lives of certain cable network elements that will no longer be used. The estimated residual life of these elements (24 months) is based on in-house analysis by the technical department in charge of the roll-out. The key assumption made to arrive at this estimate is the expected time needed to undertake this roll-out. The Group has prospectively applied this new useful life from the date the directors voluntarily decided to carry out this roll-out, resulting in a Euros 5 million increase in the depreciation charge on the consolidated income statement for 2020. Reasonable changes to the key assumption would not result in a material change in the depreciation charge for the year.

NOTE 7.- Right of use assets

Movement in right of use assets during 2020 and 2019 is as follows:

Adjustments to lease 31.12.19 Additions Disposals liabilities 31.12.20 Cost - Land and buildings 8,386 (559) 158 7,985 Other installations 63,518 10 (75) 2,610 66,063 Other property, plant and equipment 3,027 3,227 - (32) 6,222 74,931 3,237 (634) 2,736 80,270

Accumulated depreciation Land and buildings (1,516) (1,436) - - (2,952) Other installations (6,962) (6,178) - - (13,140) Other property, plant and equipment (243) (1,267) - - (1,510) (8,721) (8,881) - - (17,602)

Carrying amount 66,210 (5,644) (634) 2,736 62,668

Adjustments to lease 1 January 2019 Additions Disposals liabilities 31.12.19 Cost

Land and buildings 7,887 84 (103) 518 8,386 Other installations 64,158 - (170) (470) 63,518 Other property, plant and equipment 426 2,629 (10) (18) 3,027 72,471 2,713 (283) 30 74,931

Accumulated depreciation Land and buildings - (1,516) - - (1,516) Other installations - (6,962) - - (6,962) Other property, plant and equipment - (243) - - (243) - (8,721) - - (8,721)

Carrying amount 72,471 (6,008) (283) 30 66,210

Other installations mainly includes:

- Ducts and pipelines - Spaces for locating nodes - Optical fibre

NOTE 8.- Financial assets

8.1. Classification by category

Details of the Group's financial assets are as follows:

Assets classified at fair Financial assets at value through profit or amortised cost: loss Total 31.12.20 31.12.19 31.12.20 31.12.19 31.12.20 31.12.19

Non-current

Equity instruments - - 1,103 1,100 1,103 1,100 Loans extended 5,736 7,235 - - 5,736 7,235 Other non-current assets 591 604 - - 591 604 6,327 7,839 1,103 1,100 7,430 8,939 Current

Trade receivables 90,116 58,242 - - 90,116 58,242 Investments 736 464 - - 736 464 Cash and cash equivalents 127,366 98,247 - - 127,366 98,247 218,218 156,953 - - 218,218 156,953

The carrying amount of financial assets does not differ significantly from their fair value.

8.2 Impairment

Details of the ageing of unimpaired balances past due are as follows:

31.12.20 31.12.19 Past due From 0 to 30 days 7,255 7,945 From 31 to 90 days 5,222 4,582 From 91 to 180 days 3,996 2,774 From 181 to 365 days 3,632 816

More than 365 days 7,927 2,655 28,032 18,772 Not past due Invoiced 38,761 20,210 Pending invoice 23,323 19,260

62,084 39,470

90,116 58,242

Details of the provision for impairment of trade and other receivables is as follows:

31.12.20 31.12.19 Gross balance 109,156 75,100 Impairment (19,040) (16,858)

90,116 58,242

Movement in the provision for impairment of trade and other receivables is as follows:

31.12.20 31.12.19 Opening balance 16,858 13,284

Charges (note 12.4) 6,103 5,282 Write-offs (3,921) (1,708)

Closing balance 19,040 16,858

NOTE 9.- Equity

9.1. Capital

At 31 December 2020 and 2019, subscribed capital is represented by 178,645,360 shares with a par value of Euros 3 each.

Details of shareholders at 31 December 2020 are as follows:

Number of shares % ownership Zegona Limited 38,087,190 21.32% Kutxabank, S.A. 35,514,698 19.88% Corporación Financiera Alba 19,650,990 11.00% Other 85,392,482 47.80% 178,645,360 100.00%

9.2. Capital management

The Group manages its capital with the aim of safeguarding its ability to continue operating as a going concern, so as to continue providing shareholder remuneration and benefiting other stakeholders, while maintaining an optimum capital structure to reduce the cost of capital.

To maintain and adjust the capital structure, the Group can adjust the amount of dividends payable to shareholders, reimburse capital, issue shares or dispose of assets to reduce debt.

The Group controls its capital/debt structure based on the Financial Debt:EBITDA ratio. The Group considers a ratio of between 3:1 and 4:1 to be an appropriate balance and an optimised cost of the resources employed for its activity. At present, and as a result of the recent acquisition of Telecable, the Group's ratios are above those mentioned, although cash flows expected to be generated by the Group's businesses will allow the optimum structure to be achieved in the medium term.

9.3. Share premium

In accordance with prevailing legislation, the share premium is a freely-distributable reserve, provided that equity exceeds share capital.

9.4. Retained earnings

Details of this caption are as follows:

31.12.20 31.12.19 Reserves Legal reserve 68,122 62,097 Voluntary reserves (6,003) (6,705) Profit/(loss) for the year 79,366 62,018 141,485 117,410

9.5. Dividends and interim dividend

On 15 December 2020, the Board of Directors agreed to pay an interim dividend against 2020 results for a gross amount of Euros 0.140 per share outstanding with dividend rights. This decision was notified as other relevant information on 16 December 2020. This interim dividend, which was paid on 12 February 2021, amounted to a gross outlay of Euros 25 million (see notes 10 and 18).

These amounts did not exceed the results obtained since the end of the year, less the estimated Corporate Income Tax payable on these profits, in line with article 277 of the rewritten text of the Spanish Securities Market Act.

Thousands of

Euros

Net result obtained from 01.01.2020 to 30.09.2020 (*) 39,171 Mandatory reserves (3,917) Distributable profit 35,254 Proposed interim dividend (maximum amount) (25,010)

Cash situation Funds available for distribution: 186,877 Cash and cash equivalents 7,627 Loans available 179,250 Proposed interim dividend (maximum amount) (25,010) Excess liquidity 161,867

(*) After deducting the estimated corporate income tax for the period

The proposed distribution of Parent Company reserves and profit for the year ended 31 December 2020 is as follows:

Basis of application Euros Voluntary reserves 61,574,328.79 Share premium 355,164,632.28 Profit for the year 40,935,669.33 457,674,630.50

Distribution Euros Legal reserve 4,093,566.93 Dividends Interim dividend 25,010,350.40 Additional dividend 30,369,711.20 Share premium 355,164,632.38 Voluntary reserves 43,036,369.59 457,674,630.50

The proposed dividend distribution is equivalent to one total unified dividend, including the interim dividend paid, of Euros 0.31 per share outstanding at year end.

9.6. Own shares

9.7. Other equity instruments

On 27 January 2020, the Board of Directors approved a new long-term Incentive Plan for the 2020-2022 period, geared towards a group of executives and employees of the Group, as well as the Chair of the Board of Directors, the CEO and the Secretary. The general shareholders' meeting held on 2 June 2020 approved this Plan.

The plan's main features are:

- Term: The Plan shall be valid for three years following its approval by the Board on 27 January 2020 and it shall end on 31 December 2022 (the "Accrual Date").

- The specific incentive amount is distributed among beneficiaries using the proportions calculated by the Board, based on the recommendations of the Remuneration Committee.

- Incentive accrual: For the Incentive to accrue, the beneficiary must have an ongoing employment or business relationship with the Company on the Plan's accrual date, i.e. the 31 December 2022.

- The Plan sets out change of control clauses, considered as the acquisition of a stake that is greater than 30%, common to incentive plans of a similar nature, which may determine the early accrual, in whole or in part, of the Plan.

The main data and assumptions used by Management to calculate the plan's fair value are as follows:

- Grant dates: two different grant dates have been determined, based on the date on which the beneficiaries have reached a shared understanding of the terms and conditions of the agreement.

o June 2020 (date on which the Plan is approved by the shareholders' meeting). o November 2020 (date on which certain beneficiaries have accepted the plan's terms and conditions).

- No rotation of beneficiaries (remaining in employment until the "accrual date").

- No change of control in the Company that gives rise to early vesting.

- The operational variables set by the directors are fully achieved.

In accordance with the measurement standard described in note 3.16, the Company has recorded an equity instrument of Euros 3,268 thousand with a charge to Personnel expenses in the income statement (see note 12.3).

9.8. Earnings per share

Basic

Basic earnings per share are calculated by dividing the profit for the year attributable to equity holders of the Parent by the weighted average number of ordinary shares outstanding during the year, excluding own shares.

Basic earnings per share are calculated as follows:

2020 2019

Profit for the year attributable to the Parent 79,366 62,018 Weighted average number of ordinary shares outstanding 178,471,764 178,474,994

Basic earnings per share (Euros) 0.44 0.35

The weighted average number of ordinary shares outstanding is determined as follows:

2020 2019

Ordinary shares outstanding at 1 January 178,474,994 178,418,011 Effect of own shares (3,230) 56,983

178,471,764 178,474,994

Diluted

Diluted earnings per share are calculated by adjusting the profit for the year attributable to equity holders of the Parent and the weighted average number of ordinary shares outstanding for all dilutive effects inherent in potential ordinary shares.

Diluted earnings per share are calculated as follows:

2020

Diluted profit for the year attributable to the Parent 79,366 Diluted weighted average number of ordinary shares outstanding 178,489,033

Diluted earnings per share (Euros) 0.44

Profit for the year attributable to equity holders of the Parent corresponds to the diluted profit for the year attributable to equity holders of the Parent.

The weighted average number of diluted shares outstanding is determined as follows:

2020

Weighted average number of ordinary shares outstanding 178,471,764 Effect of shares issued on a contingent basis 17,269

Weighted average number of diluted shares outstanding 178,489,033

At 31 December 2020, in accordance with note 9.7, an equity instrument is recognised for the long-term incentive plan, which entails the generation of potential ordinary shares. In accordance with IAS 33, the number of shares that would be issued if the plan were closed in 2020 has been calculated, i.e. 17,269 shares.

At 31 December 2019, Euskaltel had not issued financial instruments or other contracts that entitle their holder to receive ordinary Company shares. Consequently, diluted earnings per share coincide with the basic earnings per share.

NOTE 10.- Financial liabilities

10.1. Classification by category

Details of financial liabilities classified by category are as follows:

Financial liabilities at Liabilities designated amortised cost at fair value 31.12.20 31.12.19 31.12.20 31.12.19 Non-current Related parties Non-current loans received (note 14.2) 153,251 146,501 - -

Unrelated parties Loans received 1,266,975 1,222,480 - - Other financial liabilities 11,785 15,285 - - Lease liabilities 54,285 57,371 - - Derivative financial instruments - - 202 804 1,486,296 1,441,637 202 804 Current Related parties Other liabilities (note 14.2) 8,654 - - - Current loans received (note 14.2) - 6,750 - -

Unrelated parties Bonds and other marketable securities 131,600 131,000 - - Loans received 6,818 46,516 - - Lease liabilities 10,398 10,150 - - Dividend payable (note 9.5) 25,010 25,010 - - Suppliers and asset purchase payables 193,973 144,043 - - Salaries payable 6,851 11,638 - - Other liabilities 1,039 874 - - 384,343 375,981 - -

Interest on the financing is pegged to Euribor plus a spread calculated by dividing net consolidated debt by consolidated EBITDA (the coefficient), both of which are defined in the loan clauses. Early repayment of the loans may be demanded if the coefficient exceeds the parameters established. Early repayment of the loan may also be demanded if there is a change in control, understood as the acquisition of more than 50% of shares with voting rights. The coefficient at 31 December 2020 amounts to a net consolidated debt of 4.2 times consolidated EBITDA, which does not exceed the parameter established of net consolidated debt of 4.5 times consolidated EBITDA.

The following changes were made during 2020:

The present value of discounted cash flows under the loan's new terms, including fees, discounting at the original effective interest rate, differs less than 10% from the discounted present value of the cash flows that still remain under the original financial liability, meaning that this amendment has not caused a substantial change to the debt. In accordance therefore with the applicable legislation, an amount of Euros 2,172 thousand was recorded as a finance cost relating to the difference in interest rates, and the original effective interest rate was maintained for accounting purposes.

A summary of the main characteristics of the tranches at the reporting date are as follows:

Nominal amount outstanding Initial Tranche 31.12.20 31.12.19 nominal Interest Maturity amount

B-1 235,000 235,000 235,000 2.75% 27.11.24

A-2 - 215,000 300,000 2.00% 31.12.23

All tranches are repayable in a single sum as they fall due.

Details of the repayments of non-current loans with financial institutions, including interest, are as follows:

1 year 2 years 3 years 4 years Total

39,732 47,006 422,918 1,117,925 1,627,581

The Parent may not distribute extraordinary dividends or redeem own shares in its own share portfolio if the coefficient referred to in this note exceeds 4 after the extraordinary dividend distribution. However, the financing contract stipulates that there shall be no restrictions on the payment of dividends with profit from ordinary activities.

Upon availing of the financing arrangements, the Parent pledged certain shares in Group companies, loans granted and bank accounts as collateral. At the general meeting held on 27 June 2016, the shareholders also approved the lodging of a collateral right over the Parent’s telecommunications network.

The consolidated Group has short-term credit facilities of Euros 50.25 million, in addition to the Euros 150 million of the aforementioned credit facility.

During 2017 the Parent Company obtained interest rate hedges to cover possible variations in the Euribor exceeding 1% in exchange for the payment of a fixed monthly premium. These hedges expire in February 2021 and the notional amount covered is Euros 825,000 thousand.

During the period September to December 2020, the Parent Company issued promissory notes for a nominal value of Euros 131,600 miles the context of a short-term commercial paper issue implemented in 2017 for an overall limit of Euros 200 million. These promissory notes have maturities between January and December 2021 and accrue interest at an average annual rate of 0.27%.

At 31 December 2020, the Group has other non-current borrowings totalling Euros 2,200 thousand (Euros 1,369 thousand at 31 December 2019).

Other non-current and current financial liabilities include loans carried at amortised cost granted by different government bodies for network deployment work in certain population centres. The nominal value of the loans at 31 December 2020 comes to Euros 13,317 thousand (Euros 17,157 thousand at 31 December 2019).

Other liabilities with related parties (current) includes the liability recognised in 2020, deriving from a new estimate of the contingent considerations payable to Zegona Limited, S.A. (note 9.1) stipulated in the contract to purchase the subsidiary Telecable de Asturias, S.A.U. (absorbed by RCable in 2019, see note 1). This contract included a clause requiring the Company to pay an amount equivalent to 35% of certain tax credits. In 2019, the Parent company paid Euros 981 thousand for this item, aligned to the liability previously generated as the estimated fair value of this debt. The liability for 35% of certain unrecognised tax credits was also not recognised as it was not considered likely. A binding consultation was submitted to the Spanish Tax Authorities (DGT) regarding this. Although a response to this consultation has still not been received, in 2020 the Directors re- analysed this matter with their tax advisors, concluding that these assets are recoverable and they have therefore recognised a deferred tax asset for Euros 24,726 thousand (see note 11.2). Consequently, the Company has recognised a liability of Euros 8,654 thousand, considering that the circumstances exist for its recognition. This liability has been taken to finance costs (note 12.5).

10.2. Suppliers

Details of the average payment period referred to in the Spanish Institute of Accounting and Auditing's Resolution of 29 January 2016 are as follows:

2020 2019

Average supplier payment period (in days) 52.81 49.89 Transactions paid ratio 54.74 49.80 Transactions payable ratio 48.11 50.18 Total payments made (thousands of Euros) 597,857 500,498 Total payments payable (thousands of Euros) 244,155 162,309

NOTE 11.- Taxes

11.1. Balances with public entities

At 31 December 2020 and 2019 balances with public entities are as follows:

2020 2019 Assets Current tax assets 8,863 1,459

Liabilities Current tax liabilities 85 2,727 Value added tax 1,588 6,098 Social Security 807 739 Withholdings and payments on account 7,119 7,500 Other liabilities 6,586 6,700 16,185 23,764

The Group has open to inspection all main applicable taxes for the years still open to inspection.

11.2. Income tax

Details of income tax recognised in the income statement are as follows:

2020 2019 Current expense /(income) Present year 12,436 16,729 Adjustments (56) (35) Deferred expense /(income) Source and reversal of temporary differences (8,387) (7,094) Changes in taxable income and tax credits 1,315 3,120 Tax credits not recognised in prior years (17,723) (3,030) Prior years' adjustments (247) (190) (12,662) 9,500

The relationship between the income tax expense and the profit for the year is as follows:

2020 2019 Income and expenses for the year 66,704 71,518

Tax rate amounts (*) 16,191 17,201 Permanent differences (441) (302) Prior years' adjustments (303) (227)

Deductions for the current year (3,383) (4,142) Prior years’ capitalised/applied deductions (note 10.1) (24,726) (3,030) (12,662) 9,500

(*) In 2020 and 2019, a 24% rate was applied to the Parent company and a 25% rate to the other Group companies.

The 2020 amount included in prior years’ capitalised/applied deductions essentially relates to the double taxation deductions that were generated by Telecable Capital Holding, S.A.U. in 2013 and 2014 and which had been unrecognised up until now, as there had been no confirmation from the tax authorities to the binding consultation made. The Group has still not received a response to this consultation, but based on a new analysis carried out with its tax advisors, the Directors have concluded that these assets are recoverable and they have therefore recognised a deferred tax asset of approximately Euros 25 million.

Details of deferred taxes at 31 December 2020 are as follows:

31.12.19 Source Reversal Other 31.12.20 Deferred tax assets Financial liabilities 741 - (1,075) - (334) Property, plant and equipment 6,748 - (1,167) (655) 4,926 Intangible assets 163 - (145) - 18 Other 883 232 (341) 1,855 2,629 8,535 232 (2,728) 1,200 7,239

Deductions on tax due 127,633 28,210 (11,802) (952) 143,089 136,168 28,442 (14,530) 248 150,328 Deferred tax liabilities Financial liabilities (187) - 43 - (144) Property, plant and equipment (10,005) - 3,666 (368) (6,707) Intangible assets (58,348) (542) 5,269 - (53,621) Grants (7,564) - 142 - (7,422) Free depreciation (13,155) (1) 1,932 - (11,224) Other (117) - 517 - 400 (89,376) (543) 11,569 (368) (78,718)

46,792 27,899 (2,961) (120) 71,610

Offsetting of asset balances (9,116) (23,481) Deferred assets 127,052 126,487

Deferred liabilities (80,260) (54,877)

Details of deferred taxes at 31 December 2019 are as follows:

31.12.18 Source Reversal Other 31.12.19 Deferred tax assets Financial liabilities 3,988 - (2,866) (381) 741 Property, plant and equipment 7,722 - (1,318) 344 6,748 Intangible assets 576 - (171) (242) 163 Other 746 900 (963) 200 883 13,032 900 (5,318) (79) 8,535

Deductions on tax due 127,446 6,692 (6,782) 277 127,633 140,478 7,592 (12,100) 198 136,168 Deferred tax liabilities Financial liabilities (235) - 48 - (187) Property, plant and equipment (13,697) - 3,692 - (10,005) Intangible assets (63,440) (542) 5,634 - (58,348) Grants (9,132) (691) - 2,259 (7,564) Free depreciation (15,757) (4) 2,606 - (13,155) Other (194) - 77 (117) (102,455) (1,237) 12,057 2,257 (89,376)

38,023 6,355 (43) 2,455 46,792

Offsetting of asset balances (15,393) (9,116) Deferred assets 125,085 127,052

Deferred liabilities (87,062) (80,260)

The deductions mainly arise due to investments in new fixed assets at the parent company and the previously explained double taxation. The application of these deductions is limited to 35% and 50% of gross tax payable, respectively.

Except for an amount of Euros 8,337 thousand, the recovery period for unused deductions exceeds twelve months.

Given the significance of the new fixed assets tax deductions, the Group performs an annual recoverability analysis even if there is no indication of impairment. The Group’s business plans show that the parent company will have sufficient future taxable income against which tax credits can be capitalised at year end and that they will be recovered in 15 to 20 years.

The key assumptions used by Management for the tax projections are future growth through national expansion in line with that contemplated in the business plan mentioned above and a growth rate after the five-year period of 1.24%.

NOTE 12.- Income and expenses

12.1. Revenues

The activity of the companies comprising the Group primarily includes: the provision of combined broadband, Pay TV, mobile and landline telephone services to residential customers, self-employed workers (“Small Office / Home Office – SOHOs”), small and medium-sized enterprises (SMEs), large accounts (including the public sector) and the wholesale market. These transactions constitute the Group's only segment of activity.

For internal management purposes, the Group differentiates between the following types of customers:

• Mass market • Business • Wholesale market and others

Details of revenues by type of customer are as follows:

2020 2,019 Mass market customers 548,228 542,116 Business 114,534 110,876 Wholesale and other 34,338 32,478 Total 697,100 685,470

Work performed by the entity and capitalised (19,176) (16,763) Other operating income (139) (404) Revenues 677,785 668,303

Mass market The Group offers customers in this category a combination of landline and mobile telecommunication services, as well as other added-value services which it renders through its fibre optic network and the virtual mobile operator agreement. These customers receive combined offers of broadband access, Pay TV and landline and mobile telephone services which are invoiced as a bundle at competitive prices. Similarly, for self-employed workers (Small Office / Home Office - SOHOs) we have a specific commercial package for this type of customer, which includes businesses with less than 10 employees. The services we sell include, inter alia, technical support, online support and electronic mail.

Business

Customers in this category - SMEs and large accounts, including the public sector - also receive landline and mobile telecommunications services. In the case of SMEs and large accounts, our sales team is able to offer integrated, tailor-made services to financial institutions, large companies, healthcare providers and public entities.

• SMEs: We offer a broad array of solutions adapted to businesses with between 10 and 40 employees. Our services include broadband access with speeds of up to 350 Mbps, symmetrical fibre access with speeds of up to 1 Gbps, MPLS access, landline/mobile convergence, IP Switch and advanced IT services.

Wholesale market and others

We offer communication services including line access and voice and data services to other operators in the telecommunications sector who use our infrastructure and installations for providing services to their customers. Part of the revenues generated in the wholesale market comes from the Group's main direct competitors, to whom we provide services such as SDH (Synchronous Digital Hierarchy) line access, Ethernet and Dark Fibre technologies, voice services (which allow distributors to complete the termination of calls originating or ending in our territory) and enabling services, which are based on our BSS networks and mobile backhaul network.

12.2. Supplies

Details are as follows:

2020 2019 Merchandise used Purchases 35,260 33,895 Changes in inventories 481 423 35,741 34,318 Subcontracted work Interconnection expenses 116,795 93,221 Other supplies 29,182 35,718 145,977 128,939

181,718 163,257

Interconnection expenses includes discounts for certain services rendered by third parties, for an amount of Euros 45,312 thousand (Euros 48,891 thousand in the comparative period). These discounts rely on the fulfilment of a certain minimum cumulative consumption until 30 June 2024.

The amount of the discounts pending offset is Euros 34,614 thousand (Euros 51,744 thousand at 31 December 2019) and they are recorded under Trade and other payables in the consolidated balance sheet.

The future consumptions estimate is consistent with the estimate included in the Business Plan approved by the Euskaltel Group’s Board of Directors. The main premise of the Group’s Business Plan is future growth through nationwide expansion.

Discounts are calculated on the basis of the Group's estimates of future consumption, based on the business plan approved by the Board of Directors of Euskaltel, S.A. Management has prepared a sensitivity analysis for the accrued discount based on changes of ± 5% of the expected consumption subject to discount, and this analysis has not yielded significant changes.

12.3. Personnel expenses

Details are as follows:

2020 2019 Salaries and wages 30,505 33,945 Employee benefits expense (other employee benefits expense) 8,260 9,168 Compensation 634 12,934 Other remuneration 2,708 2,666

Total 42,107 58,713

The average headcount, distributed by category, is as follows:

2020 2,019

Executives 28 34

Management 58 41

Other professionals 496 569

582 644

The distribution by gender of the Company's headcount at 31 December 2020 and 2019 is as follows:

2020 2019

Male Female Total Male Female Total 23 5 28 24 4 28 Executives 38 21 59 33 17 50 Management 259 237 496 266 244 510 Other professionals 320 263 583 323 265 588

The average number of Group employees with a disability of 33% or greater during 2020 and 2019 was one person.

At the date these annual accounts were authorised for issue, the board of directors of the Company was comprised of 6 men and 4 women (10 men and 3 women at the end of the prior year).

12.4. Other operating expenses

Details are as follows:

2020 2019 Advertising 19,263 11,880 Repairs and maintenance 57,525 54,921 Services provided by third parties 32,683 33,894 Other external services and utilities 12,071 14,636 Tax 6,197 13,952 Losses, impairment and changes in provisions for transactions (note 8.2) 6,103 5,282 Impairment losses and disposals of fixed assets (notes 5 and 6) 10,672 9,650 Other profit/(loss) 6,669 5,393

151,183 149,608

The increase in advertising expenses is due to campaigns during the year as a result of the national expansion plan launched in 2020 through the Virgin brand.

Losses on the disposal and derecognition of assets basically relate to the intangible assets associated with interruptions in commercial relationships with customers before the initially expected amortization period had elapsed.

Details of other profit/(loss) are as follows:

2020 2019 Contribution to the Euskaltel Foundation 1,202 2,016 Integration costs - 347 Other 5,467 3,030 6,669 5,393

Other profit/(loss) mainly includes non-recurring expenses arising from the impact of Covid-19.

12.5. Net finance income/cost Details are as follows:

2020 2019 Finance income Third parties 971 76 Finance cost Other finance costs (notes 10 and 14.2) (8,654) - Lease liability costs (2,570) (2,654) Debt at amortised cost (49,473) (46,859) (59,726) (49,437) Exchange gains/(losses) 238 (376) Change in fair value of financial instruments 602 526 Impairment and gains/(losses) on disposal of financial instruments - 9 (58,886) (49,278)

Note 13.- Commitments

13.1. Sale and purchase commitments

At each reporting date, the Group has the following purchase commitments, all relating to current operations and expected to be carried out in the following year:

2020 2019 Intangible assets 2,868 2,338 Property, plant and equipment 71,196 16,004 Inventories 9,314 378

83,378 18,720

The increase in commitments is due to the fibre optic network deployment investment explained in note 6 as well as commitments for customer equipment and terminal purchases due to the national expansion plan.

NOTE 14.- Related party transactions

14.1. Transactions and balances with key personnel

Details of transactions with key Company personnel are as follows:

2020 2019 Board Board Executives Executives members members Salaries and wages 996 1,751 991 2,128 Other remuneration Compensation - - 1,708 4,413 Incentive plan - - 810 1,853 Incentive plan (share-based) 1,722 1,061 - - Other 1,454 82 990 96

4,172 2,894 4,499 8,490

Compensation to directors in 2019 includes the amounts relating to the dismissals of the former chairman and the former CEO.

Civil liability insurance premiums paid by the Group to cover damages that could arise from actions or omissions in the performing of duties amounted to Euros 67 thousand.

14.2. Transactions and balances with other related parties

Details of transactions and balances with other related parties are as follows:

2020 2019 Sales 14,806 13,379 Services rendered (165) (237) Finance cost (13,746) (5,190) 895 7,952

Details of outstanding collections and payments related to transactions with related parties are as follows:

31.12.2020 31.12.2019 Current Non-current Current Non-current

Receivables 874 - 14 -

Cash and cash equivalents 59,463 - 59,558 -

Loans received (note 10) (153,251) (6,750) (146,501)

Other financial liabilities (8,654) (note 10) Payables (188) - (227)

51,495 (153,251) 52,595 (146,501)

The directors of the Parent have not carried out any transactions other than ordinary business or applying terms that differ from market conditions with the Parent or any other Group company.

14.3. Conflicts of interest

At the 2020 reporting date no member of the Company's board of directors or their related parties, as defined in the Spanish Companies Act, has communicated any direct or indirect conflict of interest with the Company.

NOTA 15.- Audit fees

The fees corresponding to the services provided by KPMG Auditores, S.L., the auditing company of the Company's annual accounts during the fiscal years ended 31 December 2020 and 2021, regardless of when they are invoiced, are as follows:

2020 2019 Audit services 199 249 Other assurance services 45 45 Other services 9 10 253 304

Other assurance services include those relating to limited reviews.

In the year ended 31 December 2020, other firms affiliated with KPMG International invoiced the Company for professional service fees totalling Euros 12 thousand relating to the issue of ISAE 3000 reports on the Non- Financial Information Statement.

NOTE 16.- Environmental information

Energy audits have been carried out as required by Royal Decree 56/2016.

NOTE 17.- Guarantees

The Group has to submit certain guarantees as part of its everyday commercial activity, for concession and spectrum tenders derived from legal obligations through its participation in the development of the telecommunications sector, for network deployment licences from government bodies, and to comply with its long-term contractual obligations with service providers.

The Group has extended guarantees to safeguard the working conditions of employees hired by the companies with which the agreements were reached to outsource certain services that in prior years were rendered in- house.

As a result of the Group's financing, pledges on certain assets have been extended (see note 10).

The Group does not estimate that the guarantees extended would give rise to any additional liabilities in the financial statements.

NOTE 18.- Subsequent events

Directors’ Report for 2020 Euskaltel, S.A. and consolidated companies

(Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.)

CONTENTS 1. Introduction 2. Business overview 3. Corporate structure 4. Board of directors 5. Shareholder structure 6. Macroeconomic and industrial climate 7. Commercial activity and customer relations 8. Marketing activity 9. Operating activity 10. R&D&i activity 11. Human Resources activity 12. Organisation and Quality activity 13. Economic-financial activity and key business indicators 14. Financial risks 15. Legal factors and regulatory framework 16. Corporate governance 17. Share price evolution 18. Outlook and events after the reporting period 19. Acquisition of own shares 20. Definition of alternative performance measures 21. Annual Corporate Governance Report 22. Non-financial information

1.- Introduction

On 1 July 2015 the Company's shares were admitted to trading on the Barcelona, Bilbao, Madrid and Valencia stock exchanges.

All of the shares in R Cable y Telecomunicaciones Galicia, S.A. (hereinafter R Cable) were acquired on 27 November 2015. This company was incorporated in A Coruña on 1 August 1994.

On 26 July 2017 Euskaltel acquired all of the shares in Telecable de Asturias, S.A.U. (hereinafter Telecable), which was incorporated in Oviedo on 29 December 1994.

2020 has been characterised throughout by the impact of the coronavirus pandemic. As a result of the restrictive measures taken by governments during 2020 to contain the spread of Covid-19 (social distancing, lockdowns, limiting the free movement of people, closing public and private premises, except those covering basic needs and health facilities, closing borders and drastically reducing air, sea, rail and road transport), the global economy has been significantly affected.

The telecommunications sector in particular has seen a rise in traffic as a result of customers' increased communication and entertainment needs, boosting consumption of telecommunications services. In addition, the increase in traffic has required action to be taken to expand the network's capacity so as to ensure connectivity and to respond efficiently to the increased demand for services.

2.- Business overview

Essentially through its proprietary fibre network and wholesale supplier agreements, the Euskaltel Group provides ICT solutions to cover its customers' full communication cycle with a wide range of technological services from fibre, landline and mobile phones, digital TV and broadband to digital transformation processes, Cloud solutions, IoT (the Internet of Things), Big Data, Artificial Intelligence, technology for Smart Cities and Industry 4.0.

The Euskaltel Group has recently signed an agreement with Orange allowing it to access 5G technology as a Mobile Virtual Network Operator from 1 January 2022. This agreement guarantees customers access to the most advanced mobile telecommunications services via a quality 5G network, and secures the necessary capacity to respond to all new mobile data service needs that users might have in the future.

Via the Euskaltel, R, Telecable, RACCTel+ and Virgin telco brands, the Euskaltel Group provides services to a market of over 20 million homes.

Mass market

A summary of the main services rendered to mass market customers is as follows:

• Bundles: The Euskaltel Group offers its customers the option to subscribe to a range of services in bundles comprising multiple services (high-speed broadband, Pay TV, landline and mobile telephone) at competitive prices.

The products that integrate the different bundles are broken down as follows:

• Broadband: The new generation fibre optic network, fully invested, enables the company to offer stand- out products at ultra-high speeds. At 31 December 2020, the Euskaltel Group renders 650,717 broadband services to mass market customers.

• Pay TV: A wide selection of digital TV programming, including basic and premium bundles, and also Everywhere TV (sold under the "Edonon", "Tedi" and “TV comigo” brand), functionalities of VoD and PVR. The company offers access to premium content with the most popular local offering. At 31 December 2020, the company offers Pay TV services to 494,614 mass market customers.

• Mobile phones: At 31 December 2020, the Euskaltel Group has 1,242,849 postpaid lines.

• Fixed-line phones: The Group offers landline services with unlimited national calls to landlines and a wide range of price plans for landline to mobile calls and landline to international numbers.

Business market

Details of the main services rendered to business customers, by business size, are as follows:

• SMEs: The Euskaltel Group offers a range of solutions for medium-sized businesses with relatively high-tech needs. These services include broadband access with speeds of up to 600 Mbps, symmetrical fibre access with speeds of up to 1 Gbps, MPLS Network, landline/mobile convergence (FMC), IP Switch and advanced IT services. Regarding small enterprises, the degree of standardisation in solutions has increased and the products offered have focused on bundled convergent solutions (mobile, landline and internet), successfully covering the needs of such businesses.

• Large Businesses: the Euskaltel Group's Large Account customer base includes both public entities and large corporations. Large Accounts have technically complex requirements and the company designs tailor-made solutions based on each customer’s specific needs. These include symmetrical fibre access up to 1 Gbps, FMC, SIP Trunking and MLPS networks in the communications area, but addressing projects and solutions in many other areas such as Cybersecurity (firewall solutions in the cloud, denial of service, etc.), Cloud services (virtual datacentre, disaster recovery, backups, etc., available remotely at data centres located in our territory), Big Data and Artificial Intelligence, with the creation of a specific area for the implementation of such solutions among customers.

At 31 December 2020, Euskaltel provides services to 15,985 customers in this market.

Wholesale and Other revenue

• The Euskaltel Group renders communications services to wholesale clients (most of whom are telecommunications companies in direct competition with the Euskaltel Group) including leased lines, data and voice services using Euskaltel’s installations and infrastructures to render services to their customers.

The Euskaltel Group renders Leased Lines services in SDH line access, Ethernet and Dark Fibre technologies, Voice Services (which allow distributors to complete calls to end users originating or ending in the Issuer’s territory) and enabling services which are based on Euskaltel’s BSS network and Mobile Core Network.

• Euskaltel also offers mobile enabler and systems enabler services as well as placement and resale of voice services.

3.- Corporate structure

The key lines of the Group's organisational structure are based on the following:

• An organisation that seeks to achieve best practice in the sector.

• A simple structure: two business units (mass market and business) targeting the whole customer footprint as a single unit.

4.- Board of directors

The Board of Directors of Euskaltel is authorised to adopt agreements on all matters that are not allocated by law or the statutes to the General Meeting.

Those powers that are legally or statutorily reserved for the exclusive knowledge of the Board shall not be delegated.

D) In terms of board members and senior management: a) Appointing and renewing offices within the Board of Directors and the members and internal offices of the Board committees. b) Appointing board members by co-opting. c) Appointing and relieving board members, as well giving preliminary approval for contracts to be entered into between the Company and the board members to whom executive powers are attributed, detailing remuneration for said executive functions. d) Approving remunerations for each board member, based on proposals from the Appointments and Remuneration Committee, in accordance with the remunerations policy approved by the General Shareholders’ Meeting. e) Approving the definition and modification of the Company’s organisation chart, appointing and relieving senior management (as set forth in article 2), and setting the compensation or termination benefits applicable in the event of dismissal. f) Approving the remuneration policy for senior management posts and the basic conditions of their contracts, based on any proposals made by the CEO and following reports from the Appointments and Remuneration Committee. g) Regulating, analysing and ruling on any conflicts of interest and transactions linking the Company to its shareholders, board members and senior management staff, or persons connected to them. h) Authorising or waiving obligations deriving from the duty of loyalty, in accordance with prevailing legislation.

h) Drawing up the Company’s Annual Corporate Governance Report and the annual sustainability report, as well as the annual report on the Directors’ remuneration policy. i) Ruling on proposals submitted by the Chairperson of the Board of Directors, the CEO or, if applicable the general manager or Board of Directors’ committees. j) Issuing an opinion on any other matter that falls under its remit and the Board of Directors itself considers of interest to the Company, or that the Regulations reserve for the full Board.

Euskaltel's Board of Directors is made up of 10 board members (1 executive member, 4 proprietary, 6 independent and 1 external member).

The CEO has been delegated all the powers of the Board of Directors, other than those that cannot be delegated for legal or statutory reasons, or the power to guarantee third parties.

Moreover, within the Board of Directors three Committees have been set up:

- Audit and Control Committee. - Appointments Committee. - Remuneration Committee.

Their main task is to assist, inform and raise proposals to the Board of Directors on matters assigned to them by the Articles of Association, Board Regulations or their own Regulations.

Audit and Control Committee

This Committee’s basic responsibilities fall into the following areas:

(i) internal and external auditing (ii) information and risk management systems (iii) compliance and good governance

(i) To inform the Board of Directors on issues raised by shareholders in matters within their remit. (ii) To oversee the effectiveness of the Company and the Group’s internal control and that of its financial and non-financial risk management systems, including those pertaining to operational, technological, legal, social, environmental, political, fiscal, reputational and corruption-related issues. (iii) To analyse with the external auditors any potentially significant weaknesses in the internal control system detected during the course of the audit. (iv) To supervise the process of drawing up and reporting regulated financial and non-financial information. (v) To propose to the Board of Directors, for submission to the General Shareholders’ Meeting, appointments, re-election or replacement of the external auditors in accordance with applicable standards, as well as the conditions of their contracting, and regularly gather from them information on the audit plan and its execution, in addition to preserving their independence in the performance of their functions. (vi) To supervise the Company’s internal auditing activity. (vii) To establish an appropriate relationship with the external auditors to receive information on issues that may jeopardise their independence, for examination by the Committee, and any other matters relating with the auditing procedures, as well as other reporting obligations set forth in auditing legislation and standards. (viii) In any event, the Committee shall receive from the external auditors annual confirmation of their independence with regard to the Company or any directly or indirectly-related entities, as well as information on additional services of any kind rendered by the audit firm or persons or entities connected thereto, in accordance with auditing legislation. (ix) To issue an annual report, in advance of the issuance of the auditor’s report on the annual accounts, expressing an opinion on the independence of the external auditors and summarising the Committee’s activities. This report shall issue an opinion, in any event, on the rendering of the additional services referred to in the previous section, taken individually or as a whole, other than legal auditing and in relation to the regime of independence or the regulatory standards of the audit.

(x) To report, in advance, to the Board of Directors on any matters governed by law, the Articles of Association and the Board of Directors Regulations, particularly with regard to: (i) the financial and non-financial information the Company must report periodically; (ii) the creation or acquisition of shareholdings in special purpose entities or entities domiciled in countries or territories considered to be tax havens; (iii) related party transactions and (iv) the economic conditions and economic impact of any structural or corporative modifications planned by the Company and, particularly, for the exchange ratio of the proposal.

Appointments Committee

Without prejudice to the tasks that may be assigned at any time by the Board of Directors, the Appointments Committee has the following basic functions:

Remuneration Committee

Without prejudice to the tasks that may be assigned at any time by the Board of Directors, the Remuneration Committee has the following basic functions:

The main shareholders of Euskaltel at 31 December 2020 are as follows:

Shareholder % capital

Zegona Group 21.32% Kutxabank Group 19.88% Corporación Financiera Alba, S.A. 11.00%

6.- Macroeconomic and industrial climate

Macroeconomic environment

2020 has undoubtedly been influenced by the drastic impact of the SARS-CoV-2 coronavirus in health, economic and financial terms, triggering a pandemic that is unprecedented in recent years.

This scenario also accelerated certain global trends related to connectivity, including the fields of remote working and education, logistics and e-commerce.

Industrial Environment

In the telecommunications sector in particular traffic has increased as a result of the growth in our customers' communication and entertainment requirements, boosting consumption of telecommunications services. In addition, the increase in traffic has required action to be taken to expand the network's capacity so as to ensure connectivity and to respond efficiently to the increased demand for services.

7.-Commercial activity and customer relations

Mass market

As mentioned before, activity in 2020 has been influenced by factors arising from the Covid-19 pandemic.

This did not however stop the Group from moving forward with its planned expansion into the rest of Spain via the Virgin telco brand.

At 2020 year end, there are 823,323 mass market customers. Postpaid lines increase from 1,163,163 at the end of 2019 to 1,242,849 at December 2020, an increase of 4.2%. Broadband products reach 650,717, representing 9.7% growth.

Pay TV products are up 2% from 484,957 at the end of 2019 to 494,614.

Business market

The business market presents income growth for four years running, reaching growth of 3.3% in 2020 and customer growth of 1.4%.

emergence of Covid-19, which has had a significant impact on the business sector and therefore on customers in the business market.

Likewise, in June 2020 the restructuring of the Large Account corporate website for the Euskaltel, R and Telecable brands was completed, concluding the work started in 2019.

Similarly, we continue to promote sponsorship as a sign of our bond and commitment to the region.

In terms of the SME segment, 2020 has confirmed the income growth trend already evident at the end of 2019.

The product work developed in 2019 has been marketed in 2020 with bundled telecommunication solutions for both the Group’s own DOCSIS and FTTH networks and third-party networks through wholesale agreements. This drive was bolstered once again with the launch of new functionalities in the convergent Telco solution (SME Solution) for both the Euskaltel and R markets.

8.- Marketing activity

In 2020 the Euskaltel Group focused on continuing to give our customers customised offerings that meet their demands, with greater features and more products, enabling us to continue building a solid long-term relationship with our customer base.

During the first stage of the Covid-19 crisis several initiatives were launched to promote connectivity for Euskaltel Group customers and access to leisure content during lockdown. Until the end of the state of emergency, Euskaltel customers were able to activate bonuses on their mobile phone lines free of charge. This initiative was designed to ensure mobile internet availability particularly for employees in the health sector or groups whose activity was considered essential.

With the opening up of free cinema and children's channels, the Euskaltel Group has collaborated in making the lockdown more bearable for children and adults. Additionally, it provided free access accounts to OTT TV services for all hospitalized patients and their families.

In September we launched a new initiative in Euskaltel, Telecable and R for families with reduced resources, consisting of low-price internet access. Through this service, the Euskaltel Group seeks to help the most disadvantaged families and cooperate in reducing the digital divide for children lacking study resources.

Based on high-quality services and without losing sight of customer proximity, the products and services designed and developed by the Group have enabled us to bring new customers and our existing customer base a much more competitive offering.

In 2020 the Euskaltel Group launched a new convergent offer for Euskaltel, R and Telecable consisting of simplifying access to convergent mobile offers, which are much more competitive than existing options in terms of both price and gigabyte capacity. In addition, during summer a new fully modular convergent offer was launched, with a flexible structure that allows customers to receive only internet services, with the option of adding additional mobile, landline and television services.

Thanks to the alliance with Netflix, the world leader in streaming content distribution, the Euskaltel Group has significantly improved the bundling of its services, offering a wider content catalogue.

Similarly, there have been campaigns to renew equipment, looking to offer the best Internet service by providing the best browsing experience, particular using Wi-Fi.

9.- Operations Activity (Network and Technology)

During 2020 the main actions have focused on higher capacity in all services to guarantee the increase demanded due to the Covid pandemic and lockdown.

The growth in network traffic has led to a considerable change in service demands. The following stand out;

Fixed broadband:

• Increase in traffic of over 80%. • Significant change to work patterns due to remote working. • Exponential increase in number of simultaneous users per household.

Mobile broadband and voice:

• Lockdown has deviated mobile data traffic to fixed data (Wi-Fi connection at home).

• Immediate increase in voice traffic (has almost doubled since the start of the health crisis).

Television

• More than 40% increase in viewing of traditional TV channels. • The increase in VoD exceeds 35%.

The Group has taken a great deal of action and has expanded its network capacity to continue offering normal services, without affecting customer base operations.

TV platform

• Expansion of network capacity in necessary nodes. • Expansion of capacity and adjustments to settings so as to gain performance.

Mobile network

• Interconnection expansion to mobile access (Host). • Interconnection expansion of operators. • Expansion of physical resources in call centres, logistics resources, licences and interconnection circuits in the core mobile network. • Implementation of new capacities and redundancies.

Fixed-line voice network

• Increase in interconnection capacity.

Docsis network

• Increase in capacity.

IP/MPLS core network

• Balancing of internal traffic and with carriers to adjust to internal interconnection capacity. • Expansion of internal network.

In terms of integrating platforms, projects in the following areas have been carried out:

Mobile voice network

• Standardisation of subscriber registration platforms. • Migration to new mobile data platforms and control thereof. • Migration to new mobile data control platform (SAPC).

Cable modem network

• Standardisation of customer registration platforms.

In terms of technological and product developments:

FTTH GPON network

• FTTH products have been developed on our own network and on third-party networks. Network scalability, in particular regarding changes to national network linked to the growth in Virgin Telco customers. • Development of services (Internet, data, voice and TV) over company FTTH for residential and business customers. • Improved service quality based on the analysis and improvement of solutions and processes.

Datacentre

• Changes to convergent solutions. • SDWAN solutions have been implemented. • Datacentre connectivity and security has progressed.

Customer terminal standardisation

• Standardisation of integrated and ordinary ONTs, advanced and neutral routers. • Standardisation of customer bus extension solutions (PLCs and Wi-Fi mesh). • Standardisation for the group of mobiles, including adaptation to the new Virgin Telco brand.

Fixed network deployment

• Minetad FTTH 2018 project in Galicia: Project to deploy FTTH-GPON with grants from the Ministry for NGA networks. This involves rolling out the project to around 32,000 properties in towns in Galicia. • Minetad FTTH 2018 project in Asturias: Project to deploy FTTH-GPON with grants from the Ministry for NGA networks. This involves rolling out the project to around 8,000 properties in towns in Asturias.

Security

• Renewing the ISO 27.001 certificate for the Euskaltel Group’s datacentre, back up and cybersecurity services. • Performing security audits in accordance with the annual plan. • Implementing new security measures in corporate systems and in the telecommunications network.

10.- R&D&i activity

The Group’s innovation activity in 2020 has been unified, based on the following mainstays:

• Innovation in TV services.

• 5G pilots.

TV innovation

Concerning the launch of Virgin telco, since the service is provided over different networks it has required the development of network integrations to ensure proper service delivery. This major technical challenge was successfully met at the beginning of the year, creating one of the most complex grids among Spanish operators.

In 2020 the development of major projects commenced that will mark the future of the service: new 4k decoders, 14

new remote control and new applications on mobile devices, PCs and Smart TVs.

Major R&D efforts continue to be invested in the ongoing improvement of TV interfaces and services rendered to the user.

5G pilots

At the end of 2019, the Euskaltel Group took part in the Red.es call for 5G pilots as part of a consortium of companies, and in 2020 it was awarded the programme's support for the Basque Country.

In 2020 the technical work started on the project in which the 5G solution will be piloted for network purposes in a MVNO network sharing model.

Work is also being carried out on different case studies with relevant companies in the Basque industrial sector to validate their applications and business models.

The consortium is made up of several operators, industrial companies and technology centres. In addition, various collaborating entities have been brought in to work on the project.

The case studies are related to the mobility, industry, energy and cybersecurity sectors.

11.- Human Resources Activity

The Organizational, HR and Quality Management Plan is completely aligned with the Company’s strategic objectives and covers the following lines of action:

Promoting the recruitment of new talent

Programmes are developed to attract, capture and retain talent in the market, incorporating the professional profiles necessary for the development of our business.

The Euskaltel Group has entered into collaboration agreements with the main universities in each territory, enabling it to offer students academic internships and thus help them gain early labour market experience. This collaboration is also extended to various foundations to offer young people scholarships and to accompany them in their first work experience.

In this area, although with a greater virtual presence due to the pandemic, we have continued to take part in forums and to collaborate with universities, professorships and specific actions to promote the technological development of women and STEM (Science, Technology, Engineering, Mathematics) vocations.

Promoting equal opportunities

In this area, it should be mentioned that the Equality Plans of Euskaltel S.A., (July 2020) and R Cable y Telecable Telecomunicaciones, S.A.U were signed with the employees’ legal representatives in 2020. Following the signing of these plans, the equality committees have been working on the planning and implementation of the agreed measures in accordance with the established schedule.

Particular efforts have been made to raise awareness in the equality area, for which 3 courses were organised: Training for the Equality Committee, Basic Aspects of Equal Opportunities and Raising Awareness on Equality, with several sessions aimed at 100% of the Group's employees.

Professional training and development

Drive the development of our professionals, foster their commitment and help them to grow professionally.

During this financial year a total of 21,383 hours of training have been provided, of which 533 hours were devoted to improving our professionals’ skills, 14,035 to technical training and 6,815 to languages. The main novelty this year has been the implementation of online training in both languages and other disciplines, and the launch of our e-learning platform. 15

Within the Skills area the following training initiative was carried out for the purpose of facilitating adaptation to the situation caused by the pandemic: “Adapted Enterprise, the new normal after Covid-19" focused on the Business area to help customers make the most of the capabilities offered by technology.

In the development of Technical Competencies, in order to strengthen our technological and innovation capacity we have strengthened training in DCV, Public Cloud or in technologies from producers such as VMWare, Microsoft or CISCO, and in architecture and internet protocols such as IPV6. In addition, certifications in Project Management areas such as the PMP Certificate, or in specific technologies such as Microsoft Azure or others such as VMWare or Fortinet, have been obtained and renewed. As a result of another highly current field, Data Science, training has been provided in Power BI, Python, Google Analytics and Fire Fase.

A significant number of hours (1,110 hours) focused on the use of Digital Tools in the Office 365 ecosystem have also been taught: One Drive, SharePoint and Teams, to consolidate the digital transformation. This digital training is complemented by subjects such as Strategy and Digital Marketing and Product Development, aimed at acquiring a business vision of the new strategies and trends in digital marketing and thus identify market opportunities and growth levers.

Social dialogue and collective agreements.

The corporate reality of Euskaltel SA and R Cable y Telecable Telecomunicaciones SAU has led to the negotiation of a new collective agreement for Euskaltel SA and the negotiation of a single collective agreement applicable to the personnel of R Cable and Telecable.

The collective bargaining has been carried out remotely due to the unusual circumstances prevailing in 2020, in the case of Galicia and Asturias, and has resulted in the conclusion on 15 December of the 2nd Collective Agreement of R Cable and Telecable, which has yet to be published in the BOE (Official State Gazette).

This agreement includes matters such as digital disconnection, regulates occasional teleworking, and brings in a number of measures to encourage a work-life balance.

The collective bargaining committee set up in Euskaltel continues to work towards reaching an agreement.

Promoting a digital culture in the Group

The effort made in previous years has been consolidated in 2020 and has been accelerated by the pandemic, leading to the choice of home working due to the exceptional situation. All employees worked from home for more than 6 months during the year, a measure that was taken to protect their health and safety and to guarantee business continuity, as our activity is essential for the community.

The measures taken in previous years, the deployment of portable equipment and smartphones and the widespread use of Office 365 for holding meetings to achieve a collaborative work environment between areas have been essential this year to facilitate home working.

All of these tools have enabled us to operate more efficiently, access information from anywhere and at any time, maximising self-management in terms of HR issues and promoting mobility and teamwork. This consolidates the use of the job portal, the time recording tool and the travel approval and expense management tool.

Integrating people with functional diversity

Euskaltel complies with Spanish Law 13/1982 of 7 April (Integration of Persons with Disabilities), through the creation of direct employment and the creation of jobs in special work centres that work with people with functional diversity. Specifically in 2020, reception, mail room, customer and phone service calls have been contracted, amounting to Euros 308,409 a year with Special Recruitment Centres.

We continue to develop the Family plan (Plan Familia) and the Emergence plan (Plan Aflora) among Euskaltel staff. The first of these is an economic aid scheme for employees with disabled family members to participate in workplace integration programmes and leisure activities. The Aflora plan is designed to bring to the fore unrecognised disabilities in people already employed by Euskaltel and during 2020 no employees were identified to have an unrecognised disability.

Work climate and communication

The working environment is one of the most important factors for Euskaltel Group employees and for this reason a survey was carried out among employees during the year in order to find out what the starting situation is after the organisational change carried out in 2019. Following an initial analysis of the results, a number of actions for improvement have been implemented with the involvement of all professionals, including the development of a communication plan involving specific actions that has been almost fully implemented during the year.

The communication actions implemented include meetings with the CEO to discuss business issues, the daily publication of a press dossier which includes news from the sector and the company accessible to the entire workforce, and the organisation of information made available to users on the corporate information site, as well as the creation of thematic communication channels in Teams aimed at the entire workforce.

12.- Organisation and quality activity

Organisation

Following the 2019 reorganisation, 2020 has been a year for adjusting and reviewing the organisational structure. Harmonising, updating and regularly publishing the Company’s organisation chart, as a core tool for adapting systems and people management, based on the Company’s organisational structure.

Job architecture has been revised, updating the descriptions of each position, including mission, functions and responsibilities and the skills and knowledge required, an exercise that has been reviewed with the directors of each area.

Positions are evaluated based on the Global Grading system and are assigned a level in the organisation, with a number of predefined roles being allocated to each job. Grading is based on the level of contribution and its criticality within and outside the organisation.

Quality and Environment

In 2020, the Euskaltel Group has continued its commitment to progress towards excellence and, taking the Advanced Management Model as a reference, it has continued to develop the Group's management system through the management systems, processes and organisation function.

For the purposes of better integrating the different management systems certified by ISO standards, the decision has been made to move to an Integrated Global Management System, which involves outsourcing these systems at a specific time in the year.

2020 policy deployment has been as follows:

Quality

During 2020 the Quality policy has been fully rolled out and the certification of the quality management system under the standard ISO9001 has been deployed in all Euskaltel Group companies.

An Annual Quality Plan was drawn up and executed, covering all the actions needed to maintain the quality management system. It also reviewed the Quality Control Policy and the commitment to efficiency and ongoing improvement to attain quality customer services, in order to control and improve any organisational elements influencing customer satisfaction and the attainment of the Company’s desired results.

Regulatory audits were carried out in 2020 relating to Service Quality and Invoicing Quality for the three brands (Euskaltel, R and Telecable) as well as the audit for renewing standard ISO 20000-1 Service Management Systems for Telecommunications operators.

Environmental issues

to environmental management excellence was the starting point for establishing an Environmental Management System in accordance with ISO 14001.

Health and Well-being

This year the health and welfare area has focused its efforts on ensuring the health and safety of employees in the midst of the uncertainty caused by the pandemic and the health crisis it has generated.

Information on Covid-19 has evolved as our knowledge of the virus has increased, which has involved working on the continuous adaptation of security protocols both for personnel and for suppliers, visitors or customers who have access to our facilities. All this work has resulted in the development of an action protocol that has been certified by AENOR and which accredits us as a certified company with anti-Covid 19 protocols.

In 2020 occupational health and safety management was standardised in Galicia and Asturias, and steps have been taken to extend the same model to the Basque Country to ensure a consistent level of prevention and safety in all Group companies.

Also, during 2020, work has been done in the area of preventive management in order to promote the occupational health and safety management system, currently certified under standard ISO 45001.

Information security

Information is, nowadays, one of the main assets of any company and, as such, it must be protected and the risks that can jeopardise this asset must be properly managed. With this approach, in 2020 the Information Security Management System has continued to be consolidated, with its certification, since 2012, according to the Standard UNE 27001 for Information Data Security Management Systems (ISMS) across the Group companies.

2020 highlights: 18

• Support to identify and establish security measures that help reduce risks identified. • Using the corporate risk management tool to assess risks linked to information security. • Integration of information security management into the rest of the management systems implemented at the Euskaltel Group.

Other management systems

In March 2020 external follow-up audits of the following ISO standards were carried out:

• ISO 18295 Management Systems for Customer Contact Centres: Requirements for customer care services rendered by the Customised Support Centre and • ISO 22301 Business Continuity Systems for Cloud Storage Services of Telecable.

During 2020 work has been ongoing in the area of Regulatory Compliance in the implementation and certification of an anti-bribery management system based on standard ISO 37001 and a Criminal Compliance Management System in accordance with standard UNE 19601.

13.- Economic-financial activity and key business indicators

Key performance indicators (KPIs)

The following tables show some of our operating and financial KPIs for the year.

Mass market Year

KPI 2019 2020 Total customers 770,865 823,313 Total RGUs 2,848,267 2,966,849 Landline phones 606,809 578,669 Broadband 593,338 650,717 Pay TV 484,957 494,614 Post-paid mobiles 1,163,163 1,242,849 RGUs / sub 3.69 3.60

Business Year

KPI 2019 2020 Customers 15,763 15,985

Deployment continues, both in terms of in-house deployment and also access to new homes via network sharing agreements with other operators throughout Spain, allowing access to 85% of the market where we were not present through the Virgin Telco brand, which was launched in May 2020.

Broadband has also grown from 593,338 products in 2019 to 650,717 products at 31 December 2020, an increase on 9.7%. In TV we have reached 494,614 services, up 2%.

The Business segment has performed positively in 2020, increasing to 15,985 customers, up 1.4% with regards the number of customers at 31 December 2019.

Financial data Year

2019 2020 Total revenues 685,470 697,100 Y-o-y change 1.7% Mass market 545,835 548,228 Y-o-y change 0.4% Business 110,040 114,534 Y-o-y change 4.1% Wholesale and other 29,595 34,338 Y-o-y change 16.0% EBITDA 344,535 342,774 Revenue margin 50.3% 49.2% Y-o-y change -0.5% Profit/(loss) for the year 62,018 61,216

Investments (154,259) (178,312) Y-o-y change 15.6% Operating cash flow 190,276 164,462 Y-o-y change -13.6%

Mass market revenues reflect an upward trend for the period, increasing by 1.7% compared to the prior year.

Revenue from the Business market amounted to Euros 114.534 thousand, up 3.3% on the prior year.

Wholesale and other revenue increased by 5.7% to Euros 34.338 thousand.

EBITDA stands at Euros 342,775 thousand at 31 December 2020, reflecting a small decrease in absolute terms compared to the same period last year. This change is as a result of several factors. The gross margin is impacted by the increase in sales of customer equipment, which is offset by a decrease in other costs despite Virgin telco’s solid growth.

At 31 December 2020, investments stood at Euros 178,312 thousand compared to Euros 154,259 thousand at 31 December 2019. This increase is mainly due to the ongoing undertaking of relevant projects by the Euskaltel Group relating to deployment, investments needed to absorb the growth in data traffic experienced by the customer portfolio and also investments made in the network and customer equipment resulting, to a large extent, from the launch of the Virgin Telco project. 20

Post-tax profit for 2020 is Euros 79,366 thousand compared to Euros 62,018 thousand in 2019.

14.- Financial risks

Our activities are exposed to credit risk, liquidity risk, and market risk, the latter of which includes currency and interest rate risk.

We use financial risk evaluation and mitigation methods suited to our activity and scope of operations, which are sufficient to adequately manage risks.

A summary of the main financial risks affecting us, and the measures in place to mitigate their potential affect, is as follows:

Credit risk

The impact of bad trade debts on the income statement was Euros 6.1 million (Euros 5.3 million in 2019), equivalent to 0.9% of 2020 turnover (0.8% in 2019). Aged, non-impaired receivables past due by more than 90 days at 31 December 2020 amount to Euros 15.6 million (Euros 6.3 million at the end of 2019).

Liquidity risk

At 31 December 2020 we had a non-current revolving credit facility of Euros 300 million, with Euros 150 million drawn down, and current undrawn credit facilities totalling Euros 50.25 million.

Cash and cash equivalents reflect the amounts available with financial institutions that have high credit ratings.

At 31 December 2020, cash and cash equivalents amounted to Euros 127.4 million (Euros 98.2 million at the end of 2019).

We adjust the maturities of our debts to our capacity to generate cash flows to settle them. To do this, we have implemented a seven-year financing plan with annual reviews and periodic analyses of our financial position, which includes long-term projections, together with daily monitoring of bank balances and transactions.

Market risk

Our scope of operations barely exposes the Group to currency or price risks, which may arise from occasional purchases in foreign currency of insignificant amounts.

Since the second quarter of 2016, the Group has been settling interest on a quarterly basis, which allows it to closely monitor the performance of interest rates in the financial market.

15.- Legal factors and regulatory framework

The Euskaltel Group operates in a sector subject to regulation of retail and wholesale services, universal services, privacy, tariffing and network neutrality.

The rendering of services is exposed to decisions or measures that may be adopted by the Administration, as well as economic sanctions for breaches in the rendering of services.

Measures adopted by the telecommunications industry due to Covid-19

On 15 March 2020, Royal Decree 463/2020 of 14 March, declaring a state of emergency in order to manage the health crisis caused by Covid-19, was published in the Official State Gazette (BOE). The state of emergency was extended every 2 weeks from the 15 March 2020 until the 21 June 2020.

As a result, from 28 May 2020, the bans on extraordinary campaigns, the ban on portability and the ban on price increases were abolished.

Resolution by which agreement is reached to notify the European Commission of the draft measure relating to Market 1/2014 Fixed voice termination.

On 25 July 2019, the CNMC adopted the Resolution for the approval of the definition and analysis of wholesale call termination markets on public telephone networks in fixed locations, designating the operators with significant power in the market and imposing certain obligations, as well as reporting to the European Commission and the ORECE.